In-house funds yield happiest returns

Superannuation funds run by companies for their employees, both private and public sector, are among the best performers over the long term. Employees with Telstra and the Commonwealth Bank have their retirement savings invested with two of the best-performing super funds. Data from researcher Chant West shows that over the 10 years to June 30 this year, CBA Group Super Mix 70 has an average annual return of 8 per cent. That is equal first with REST Core, the industry fund open to the public.

The Telstra Super Balanced fund, the fund for Telstra employees, produced an average annual return over the same period of 7.8 per cent. That puts the fund in equal-second place with QSuper Balanced, the fund for current and former Queensland government workers, and ESSS Growth, a fund for Victorian state government employees. Giant industry fund AustralianSuper is in the top 10, with its Balanced option producing a return of 7.6 per cent.

Employers have outsourced most of the small corporate funds because they do not have the economies of scale to keep fees down. These winning corporate- and public-sector funds have scale. They also have good in-house investment management and good outside consultants.

Non-profit industry funds, which include industry funds, corporate funds and public-sector funds, occupy six of the top-10 places over 10 years. Not a single "for profit" fund makes the top 10. One of the reasons for the good performance of corporate- and public-sector funds is their low costs. Membership is limited to their large number of existing and former employees. That means they spend less on marketing than those funds trying to grow their membership by reaching the public.

The hazards of putting too much store on the one-year performance are shown by the fact that eight of the top-10 long-term performers do not figure in the top 10 for the year to June 30. According to Chant West numbers, the median-performing fund produced a return of more than 15 per cent for the year. That was the best one-year return for 16 years. But fund members have to be careful if they are tempted to switch to one of the better performers based on the one-year numbers. There are almost always factors about the way a fund invests that help explain why it is at the top of performance league tables for the year.

Sharemarkets have performed particularly strongly over the past year. Australian shares have produced a total return (including dividends) of more than 20 per cent. Global shares have produced a total return of more than 30 per cent.

Most people are invested in their super fund's "balanced" investment option. These spread the money between the asset classes but some invest more in shares than in other classes such as fixed interest. At any time of the market cycle some funds will be favoured over others. Over the long term, those swings and roundabouts tend to even out.

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