Seventh year and no hitch

Making your money grow

Making your money grow

Six poor, post GFC-years have played havoc with balances, but with shares recovering, balanced options are bouncing back, writes John Collett.

It is turning into a bumper financial year for superannuation returns. For 2012-13, so far the typical balanced investment option has returned 15 per cent. The 12-month return to April 30 is 12.5 per cent. Depending on the final result for May and what happens this month, it could be the second-best financial year since compulsory super began in 1992.

Whether or not balanced options reach June 30 with the second-best return since 1992 will depend on the performance of Australian shares in the next few weeks. After peaking in mid-May at just over 5200 points, the ASX200 is now around (if not below) 4900 points. But, all in all, it's been - as you can see from the index's progress - a pretty successful year.

"Balanced" investment options are usually the default investment options for those who do not choose who manages their super. Most fund members are invested in balanced options. Fund members will be happy with the results so far this financial year after six challenging years since the onset of the GFC, says Jeff Bresnahan, the founder of researcher SuperRatings.

About half of the money in the typical balanced option is invested in shares, making the performance of sharemarkets the most important driver of returns. Strong returns from shares and from listed property are behind the good performance. Australian shares have returned about 20 per cent over the past year. The typical balanced option has about 30 per cent of its money invested in Australian shares.

Australian and international listed property have also performed particularly strongly. Australian listed property has produced a total return of more than 30 per cent over the past year. The good performance from Australian and international shares and listed property has washed back through the longer-term performances. The typical balanced option of the major funds has produced an average annual return of 7.1 per cent over the 10 years to April 30 this year. That puts the long-term performance above inflation, plus at least 3 percentage points that most funds have for their balanced investment options.

Such high exposure to shares can also make an uncomfortable ride. That is what happened between late 2007 and early 2009 when volatile sharemarkets caused balanced options to lose 25 per cent of their value, or more. But fund members have to know what they are invested in, Bresnahan says. If fund members understand that the returns from balanced options can be volatile and they take the long-term view, balanced options are appropriate, he says. But older fund members can face upheaval in the lead-up to retirement.

Funds offer diversified options that are lower risk than balanced options. But withdrawing from investment markets completely and switching into a cash option can be costly. Fund members who switched from balanced options to cash options at the bottom of the market in February 2009 will have missed out on the 46.7 per cent rebound in the performance of the typical balanced option since then, SuperRatings' data shows. Cash options have only increased by just 14.9 per cent over the same period.


SuperRatings' data for the 12 months to April 30 this year shows the typical balanced investment option returned 12.5 per cent. Not-for-profit fund StatewideSuper Marketlink Growth option leads the pack with a one-year return of 14.9 per cent.

The option just edged out Aon MT Balanced Active option with a return of 14.8 per cent. RecruitmentSuper EasyChoice Growth takes third spot with a return of 14.7 per cent, and industry fund REST Core Strategy is in equal fourth place with UniSuper Accumulation (1) Balanced with a return of 14.5 per cent.

The head of research at SuperRatings, Kirby Rappell, says it is the performance over the long term that matters most. After all, most people are investing in superannuation for their working lives and not for one or two years.

With the long-term in mind, SuperRatings has ranked the investment options by seven-year returns. Over that time the best-performing balanced option is the industry fund REST with its Core Strategy option producing an average annual return of 6 per cent. Commonwealth Bank Group Super Mix 70, the fund for the bank's employees, is in second place with a return of 5.9 per cent, and the LGsuper Accumulation Balanced option in third place with a return of 5.3 per cent. REST has produced returns that have seen its balanced option - the Core Strategy - included in the top eight performers for each of the past one, three, five and seven years.

The general manager of investments at REST, Jo Townsend, says: "We are focused on delivering returns to our members that are going exceed the rate of inflation, and grow the value of their superannuation over the longer term."

And that means not getting caught in the noise of short-term moves in markets, she says. But the fund is prepared to make changes to asset allocation when needed. REST has had success in finding investment managers who can really add value to market returns after their fees. For Australian shares, for example, the super fund has appointed fund managers who are adding about 3 percentage points to the returns of the sharemarket, which is a big outperformance. There has been good outperformance in other asset classes as well, Townsend says.

Share options

Most of the world's sharemarkets have performed strongly over the past year. The median-performing Australian shares option returned 20 per cent over 12 months as investors bought more higher-yielding shares. These include the big banks and Telstra, whose shares are on dividend yields of 7 per cent or 8 per cent after franking.

Those yields have looked increasingly attractive to investors as the Reserve Bank has been lowering the cash rate. Term deposits are paying about 4 per cent now compared with about 6 per cent two years ago. For the past 12 months, the best-performing Australian shares option is MLC Mkey IncomeBuilder with a return of 34.5 per cent. Perpetual WealthFocus Perpetual Industrial Share Fund takes second spot with a return of 30.7 per cent. Accountants Super Australian Shares takes third with a return of 28 per cent.

Over seven years, top honours in Australian shares is shared by HOSTPLUS and REST with an annual average return of 6.3 per cent. Second is shared by Perpetual WealthFocus Perpetual Industrial Share Fund and Catholic Super Australian Shares, each returning 6 per cent.

International shares have also done well, with the typical international shares option returning 13.6 per cent over the year. AMP SS Future Directions Hedged International Share option leads with a return of 19 per cent, followed by the Commonwealth Bank Group Super International Shares option, returning 18.4 per cent. GESB Super International Shares takes third spot with a return of 17.8 per cent. Over seven years, the best performer is Commonwealth Bank Group Super International Shares with an average annual return of 2.1 per cent.

Capital stable

Capital stable is the most favoured investment option for those in retirement and those close to retirement, Rappell says. Investment options with exposures to growth assets like shares and property of between 20 per cent and 40 per cent are included in the researcher's capital stable category. Capital stable options are favoured by older fund members because the risk of the balance suddenly dropping is much less than for balanced options.

More of the returns come from income-producing investments to match the need for income during retirement. For the year to April 30, the typical capital stable investment option returned 8.5 per cent. Over the past 12 months, StatewideSuper Marketlink Conservative option is the best performer with a return of 12.7 per cent.

In second place is Aon MT Capital Stable Active with a return of 11.1 per cent. In third place is Perpetual WealthFocus Perpetual Conservative Growth Fund with a return of 10.3 per cent. Over seven years, the best performer is the Commonwealth Bank Group Super Mix 30 with an average annual return of 6.1 per cent. HOSTPLUS Capital Stable Option is in second spot with a return of 5.7 per cent. Seven options share third with a return of 5.5 per cent.

Checking is easy

While the 12-month returns can be an indication of how a superannuation fund is tracking, it is too short a period to judge performance.

Investment options are put into categories by researchers with their peers according to how much of the money is invested in growth assets, and how much is in defensive assets.

Shorter-term poor performances could be a sign that all is not well with the fund, but markets go through cycles. The only worthwhile measure of fund performances is over the long term, over five or seven years.

Comparison of your fund with others in the same category is easy. Your fund will provide long-term returns on its website and disclosure documentation. The returns can be compared over the same time frame with the median return given by SuperRatings at

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