Fund strategy ignorance costing investors
Investors have been warned to look more closely at underlying asset allocations as well as performance rankings when comparing superannuation funds.
Commenting on Mercer Human Resource Consulting research released today, the company’s head of industry funds business Russell Mason called for clarity and a deeper understanding by members of a fund’s underlying asset strategy.
He said the research had shown a fund’s exposure to growth assets, as opposed to manager selection, was more predictive of long term investment performance.
The firm prepared an analysis of returns of three hypothetical ‘like with like’ funds with 85 per cent, 75 per cent and 65 per cent exposure to growth assets - typically shares and property - on a year-on-year basis, and annualised over seven years using the actual indexed returns achieved in those years for each asset class.
“Over the past seven years those funds with a higher exposure to growth assets, especially Australian shares, generated the average highest return but under-performed in three of those seven years,” he said.
According to Mason, investors generally paid too much attention to which super funds were delivering the “best” performance under generic titles of balanced investment options.
He said under current disclosure rules, while a fund name could not be misleading, there were no clear definitions as to what the name should represent.
“Just because an investment option is called “balanced” or “diversified” doesn’t mean you can fairly compare it with other options of the same name. Fund members need to dig deeper into the reasons why one fund performed better than another - and also compare over a reasonable timeframe - before using performance as the primary determinant for changing funds,” he said.
Recommended for you
Sequoia Financial Group has announced it is selling off its Informed Investor subsidiary which it acquired in April 2022.
Wealth Data has examined which advice business model has seen the most growth since the start of the year including those that offer holistic advice.
Research conducted by Elixir Consulting and Lonsec has quantified the efficiency gains of using managed accounts in financial advice practices in hours per week saved.
With only one-quarter of advice practices actively seeking feedback from clients, the Financial Advice Association Australia has emphasised why this is a critical tool for client retention.