Industry funds score again

It’S now official. Superannuation returns have ended the financial year in negative territory, the first time this has happened since 2002-03.

Irrespective of Australians having a better understanding of both markets and superannuation, we can expect that some people will be provoked into making inappropriate knee-jerk changes.

Then, too, there will be the inevitable comparisons of the relative performance of industry funds and retail master trusts in these more testing times and, as ever, the available evidence will suggest that those invested in industry funds have emerged better off.

However, research released in mid-June by actuarial firm Chant West has at least put the relative performance of the industry funds and the retail master trusts into some kind of context, suggesting that, in the end, it has been attributable to their relative asset allocations.

For instance, industry funds have definitely benefited from remaining comparatively underweight in international equities while being reasonably well exposed to alternative investments.

Equally, they have benefited from a predisposition towards investment in direct rather than listed property.

It might therefore be argued that industry funds have performed better than retail master trusts because they have been more savvy with their overall asset allocation, correctly interpreting the relative underperformance of international equities and having the good sense to steer clear of listed property.

However, as is always the case when comparing industry funds with retail master trusts, it is not quite that simple.

As the Chant West research made clear, while the retail master trusts have had to wear the decline in value of their exposure to listed property, the validity of the value of the direct property held by industry funds is yet to be tested.

To quote the Chant West analysis: “… Industry funds will be looking closely at their property assets in the lead up to the reporting season. When you consider the credit crunch and the re-pricing of risk that we’ve seen in other markets, it raises the question of how realistic are current appraised property values. We’ll only know that when we have a chance to compare book values with actual sale prices when properties change hands, hopefully in a willing buyer, willing seller market.”

— Mike Taylor