Golden glow after the gloom

Superannuation fund members opening their annual statements for the year to June 30 will, in most cases, be disappointed by what they see. But the good news is that since that date, their funds are likely to have done much better.

The typical "balanced" investment option, where most people have their super guarantee charge going, returned 0.4 per cent, according to SuperRatings.

Sharemarkets around the world, including Australia, have performed strongly since June 30.

With most of the other major investment classes also doing well, the return for the 12 months to August 31 is 6.5 per cent. It is too early for performance data for the year ending September 30, but Kirby Rappell, the research manager at SuperRatings, estimates the typical return will be between 7.5 per cent and 8 per cent.

Over the long term there is some reason for fund members not to feel too hard done by. SuperRating's data shows that for the 10 years to August 31, the typical balanced option has produced an annual average return of 5.9 per cent.

Most super funds have more than a dozen investment options. Some will be pre-mixed or diversified options, and others will be single-asset class options, such as Australian shares, fixed-interest or property. Fixed-interest is the best-performing investment option, with a return for the year to August 31 of 7.9 per cent.

Next-best is the growth category, with 6.9 per cent.

SuperRatings disregards the names or labels a fund gives to its investment options. The researcher defines a "growth" option as any option with an exposure to growth assets, such as shares and property, of between 77 per cent and 90 per cent. It defines balanced investment options as those with an exposure to growth assets, such as shares and property, of between 60 per cent and 76 per cent.

These options are usually the default options of most funds, and where most people have their money. Rappell says that while fixed-interest had a good 12 months, investors need to be wary of chasing returns as the best period for fixed-interest could well be over, he says.

As for the growth investment options, where most people have their money, UniSuper Accumulation Balanced Growth is the best-performing option over the 12 months to August 31, with a return of 8.6 per cent.

The runner-up is the Core Strategy investment option of the 2 million-member REST industry super fund, with a return of 8.3 per cent.

In third place is the CareSuper Balanced option, with a return of 8 per cent. All top-10 performers over the year are non-profit funds.

Watch out for fees on cash

Cash is the ultimate safe-haven investment. Cash options of super funds have produced an annual average return of 4.5 per cent over the 10 years to August 31 this year. But that is the typical performance, and there is a large range of returns.

The research manager at SuperRatings, Kirby Rappell, says over the past five years there has been an annualised 3.5 percentage point gap between the best- and worst-performing cash options. Typically, funds have management fees for their cash options, but the investment fee is fairly small, about 0.12 per cent, he says.

Cash options are actively managed, with the funds adjusting exposures between bonds issued by the Commonwealth and states, and bank bills with various dates for maturity.

However, Rappell warns that on some of the older retail funds, cash options can have management fees of up to 1.5 per cent.