The top 10 MySuper products have opened up a 3.5 percentage point lead over the bottom-performing funds over the past two and a half years, the longest period for which performance data is available for the no-frills superannuation products.
The list of the bottom-performing vehicles, which includes a mix of retail, industry and corporate funds, sheds the first light on which super funds might be on the Australian Prudential Regulation Authority's hit list.
Earlier this month APRA told a Senate estimates committee that it was preparing to investigate the worst-performing super funds, many of which it noted were in the not-for-profit sector. Industry executives have argued that APRA should be forcing small, underperforming super funds to merge so members can benefit from economies of scale.
The top 10 performing funds recorded an average annual gain of 8.9 per cent for the two and a half years to December, against a 5.4 per cent gain for the bottom 10. The list includes traditional balanced funds as well as so-called lifecycle funds, where the asset mix changes as savers age. In the case of lifecycle funds, the strategy that most resembles a balanced fund is taken into account.
Analysis of the performance data comes as the Productivity Commission will this week publish a report that is expected to provide potential alternative models for distributing the compulsory super contributions of the millions of Australians who have no interest in the manager of their retirement savings.
APRA declined to comment on whether the worst performing funds, including Betros Bros Superannuation Fund, LESF, Australian Catholic and Retirement and Energy Industries Superannuation Scheme were on its radar. A spokesman said the regulator looked at a broad range of factors, including investment strategy, fees, insurance benefits and a fund's strategy and business plans.
Actuarial firm Rice Warner said that the time period over which performance data is available was short because MySuper products were only introduced in 2013, adding that some funds might be able to recover their performance over the longer term.
But Rice Warner consultant Nathan Bonarius said that if the poor-performing funds also charged high fees and were not achieving their business targets, they would most likely be on APRA's hit list.
"If they have got the trifecta, then APRA will be putting the heat on those funds. Bad performance on its own is not enough to tell a fund it should be merging," Mr Bonarius said.
He noted that the poor-performing funds tended to be smaller, pointing to a link between scale and investment returns.
Among the best-performing funds are some of the country's biggest schemes, such as Cbus and Hostplus.
"Trustees need to be aware of and proactively considering how they will respond to the challenges that will arise, now and into the future, to ensure their funds remain 'fit for purpose'. That means having the scale, capacity and resources to deliver on their obligations to members on an ongoing basis, which requires sound planning taking into account a range of plausible scenarios, disciplined monitoring of progress against those plans, and taking prompt corrective action when underperformance is identified. Not all trustees are doing this adequately," Ms Rowell said in a speech.
Financial services group OneVue, whose Diversa subsidiary, is the trustee for two funds in the bottom 10, LESF and Smartsave, denied that being small was an impediment to performance. Nevertheless, OneVue executive general manager of trustee and investment consulting Vincent Parrot said APRA was putting pressure on funds to merge through its scale test and it was the company's aim to consolidate the 33 super funds that now fall under its banner.
"We are moving towards a process of consolidating and growing the size of our funds," Mr Parrot said.
The performance analysis reveals the complexity of APRA's task in determining which funds it should single out for overall poor performance. Not only is two and a half years a short time over which to judge super fund returns, among the bottom performers are MySuper products with more conservative investment strategies than a typical balanced fund.
The Pitcher Retirement Plan has a 50:50 split between aggressive and defensive investments, against a more usual mix of 70 per cent invested in growth assets and 30 per cent in defensive assets. Maritime Super moved from a 50:50 mix to a 70:30 mix only in July last year.
The Anglican National MySuper plan, which is managed by wealth giant AMP, takes an ethical approach. It is invested in AMP's responsible investment leaders balanced fund, which does not own shares in alcohol, gaming, gold and other mining stocks, many of which performed strongly in 2016.
Other funds, such as LESF and United Technologies Corporation Retirement plan, admitted they took an overly conservative stance on equities and so failed to reap fully the benefit of the recent upswing in share prices. "We have taken a deliberate strategy to invest for the long term rather than chase our peer group every year," said a source familiar with the United Technologies plan. The United Technologies balanced product returned 5.5 per cent over the 10 years to December 31, above the 5.3 per cent average across the industry.
Some funds noted they were not open to the general public and in any case offered superior insurance products and other services.
The information about fund size is also fraught with difficulty because the amount of savings in the MySuper product does not always accurately reflect the total size of the fund. The APRA data shows that Maritime Super's MySuper product has just $370 million of assets, but Maritime's total funds under management is $5 billion, because the scheme has not yet transferred all of the default savings to the no-frills MySuper plan. Even so, several of the funds at the lower end of the scale have less than $1 billion of total assets.
BT Financial Group, which manages the ASGARD Independence Plan, said the APRA data was incorrect.
"As APRA itself states, comparisons on relative investment performance cannot be made on the basis of its data. This fund was established with a minimum six-year investment timeframe, has only been operating for three years, and has exceeded its performance targets over all time periods," a BT spokesman said.
