INDUSTRY superannuation funds have outperformed retail funds over the past 10 years and they have largely done so by being more active in their asset allocations. They are more prepared to change their asset allocation as market conditions change, which has paid off for their members over the long term.
"The numbers say the not-for-profit funds have got it right over the past decade," Jeff Bresnahan, the founder of SuperRatings, said. Data from SuperRatings shows non-profit industry funds achieved an average annual return to March 31 this year of 5.86 per cent over the past 10 years, compared with a return of 3.56 per cent by retail funds over the same period, a difference of 2.3 percentage points.
The figures are based on a "balanced" investment option, where most people have their super.
Mr Bresnahan said the main reason for the difference in returns was asset allocation. Industry super funds are more aggressive in their asset allocation with bigger exposure to "alternative" assets, which include unlisted investments such as infrastructure, private equity and hedge funds.
The data shows industry funds have a 17 per cent exposure to alternative investments whereas retail funds have just 5 per cent. Retail funds have an exposure of 8 per cent to property, mostly to listed property trusts, while for industry funds this is 11 per cent, mostly through direct investments.
The returns are reported by SuperRatings net of fees. After asset allocation, the second factor for the better performance of industry funds was their lower administration fees, Mr Bresnahan said.
Low-cost retail funds are making their way into the market but their market share is still fairly small. "We see the gap [in administration fees] closing but it's still significant at about 40 to 50 basis points," Mr Bresnahan said.