A revival of industry fund outperformance could play a major role in ongoing policy debate that is splitting the superannuation industry into two distinct factions.
New research from Rainmaker Information, released in the latest edition of the Rainmaker Benchmarking report, analysed the performance of retail and not-for-profit funds over the 10-year period from June 2005 to June 2015. The report found a close link between the relative performance of both segments and overall market performance.
Specifically, over that period retail funds tended to only outperform during periods of strong market returns; not-for-profit funds, conversely, were usually the only funds to outperform when market returns were poor. Based on the research, there was only one period over the ten years where retail funds outperformed in negative markets.
Although on an average rolling three-year basis the performance gap between the two segments is 1% - down from the 3% high during the GFC - this finding is particularly relevant given the bear phase global share markets are currently in, with European and Japanese markets falling over 20% since the start of 2016 and the ASX 200 benchmark falling up to 21% below its peak in April 2015. Rainmaker's report would indicate that this is the time for not-for-profit funds to shine.
And as Australian Institute of Superannuation Trustees chief executive Tom Garcia noted to Financial Standard, part of this may in some cases come down to fees: "In times of low returns, fees make a difference: a difference of just half a percent in annual fees can mean the difference of $50,000 at retirement, all other things being equal."
As to the reasons behind this historical (and potentially ongoing) performance gap, the report highlighted an "underlying difference in risk profile of the investments within retail funds and not-for-profit funds," which it suggested may be due to a higher exposure to listed equities on the retail side and "infrastructure type risks" on the not-for-profit side.
The full story is available in the latest print edition of Financial Standard - out now. You can also download the iPad issue here.