True value of industry super

The more I learnt about them the more I believed that a low-cost industry fund was as good a choice as any for many people as a retirement savings option. Obviously it's horses for courses and people who need a lot of service should probably look elsewhere. Industry funds' performance, along with all super funds, hasn't been that great lately but these funds have still featured among the top performers.

Often the reason given for their superior numbers has been their allocation to unlisted assets.

I've written in this column before about the diversification benefits of investing in direct investments for super funds but have often found myself to be their lone defender amid criticism of this practice.

This criticism includes the alleged infrequency of the unlisted assets valuations and therefore a potential sharp drop in the overall super fund's value when they are priced.

Allegations that a fund values all its unlisted assets at the same time each year are just plain wrong. This may have been the case eons ago but it certainly isn't now. Most funds that have a large allocation make sure valuations happen on a rolling basis so that the fund isn't hit with a big change in valuations at the end of a particular year.

As a self-confessed fan I was pleased to read research this week that found the numbers to back this up.

Warrant Chant, of Chant West, did some modelling that found while revaluations of direct investments will make a difference to their performance relative to their master trust and retail peers, it will not make an enormous difference. This modelling assumes industry funds have a 20 per cent allocation to unlisted assets (excluding hedge funds), compared with 4 per cent for master trusts.

Assuming that unlisted assets fall 15per cent for the June quarter, other assets are unchanged and cash returns 1 per cent, Chant found that industry funds' projected return for the financial year would be a negative 17 per cent against a negative 21 per cent for master trusts.

Even in a world where all other asset classes, bar cash, returned a positive 15per cent over the quarter and unlisted were down 15 per cent, industry funds would still outdo master trusts by 2.8per cent, returning negative 10 per cent for the financial year.

Industry funds don't give everyone everything they need, and there are some very good master trust and

retail options available, but whatever way you look at it, the numbers speak for themselves.