How to compare MySuper and Ethical funds financial performance

Photo Credit: Medium

This week, you might have seen two separate reports about the financial performance of super funds - Ethical Finds and MySuper. How well your super is doing financially is generally something that we’re all concerned about, as a proportion of your “pay” is generally a super contribution from your employer (10%). Then there’s always retirement to think about, and whether you’ll have sufficient funds at that time of life.

The purpose for publishing each report is different.

MySuper financial returns (most Australians hold this product mix as super)

APRA* is looking at the performance of the default MySuper product (which most people hold) to improve/better the performance of “laggards”, that is those funds which significantly underperform the median (i.e. mid-point) of all funds.

• You can check this yourself using 

  • the ATO YourSuper comparison tool, or 

  • your myGov

• The tool shows:

  • a table of MySuper products (updated quarterly) ranked by fees and returns, and

  • whether the product is performing, underperforming or not assessed under the APRA annual performance test.

Outcome 

The test assessed 76 MySuper products, with 13 failing the test [i]

• Underperforming funds had net returns of 3.54 – 8.51% over 7 years 

• Performing funds had net returns of 7 – 9.44% over 7 years

Consequences

• Fund trustees whose products failed the test need to notify members by September 27, 2021. 

• APRA has written to funds whose products failed/just passed the test setting, out its’ performance expectations.

• Where a product fails the performance test two years in a row, the fund will be prohibited from accepting new members until performance improves.

Additional Information 

• From July 1, 2022, the YourSuper comparison tool will also show the results for trustee-directed products (i.e. products where the fund trustee controls the design and implementation of the investment strategy).

Responsible Investments 

• The RIAA** is benchmarking the performance of responsible fund and releases a study each year which analyses the financial performance of these funds.

• These funds can include ethical investment leaders in the responsible investing space to those funds which are getting there.

Results 

• In 2020, the performance of all funds tumbled over a 1-year timeframe compared to 2019 and to a lesser extent over the three and five-year time horizons. 

• However, despite economic setbacks, responsible investment funds:

  • outperformed both the international share and multi-sector growth funds in 2020,

  • performed on par with the Australia Fund Equity Large Blend, but 

  • underperformed compared to the S&P/ASX 300 over three and five years.

So can you actually compare these?

• MySuper products 

  • Offer only one investment option. For many funds, this is simply their current ‘balanced’ fund offering. Funds can, however, apply to use a ‘life stages’ investment strategy as their MySuper investment option

  • It can be difficult to know how these funds are actually invested.

• Responsible Investment Leaders (as assessed by RIAA) explicitly consider ESG products in 

  • the valuation of assets, construction of portfolios and allocation of capital, and

  • are transparent in reporting their activities to improve environmental and social sustainability, but also the outcomes they achieve. 

So can you actually compare these?

• The short answer is no, at least not right now, becasue there’s insufficient detail to compare like with like funds.

However, the APRA report in 1 years’ time may provide a better means of comparison.

• And ASIC*** is proposing that companies take account of climate risk and its impact on our financial system and markets.

• Another issue is that funds which are claiming to be responsible investors are not necessarily true to label or doing it well. ( see Greenwashing and your green investments )

*APRA - Apra Prudential Regulation Authority . Under the Your Future Your Super reforms, APRA is required to conduct an annual performance test for MySuper products. The assessment under the performance test, in conjunction with the ATO’s YourSuper comparison tool, is intended to hold RSE licensees to account for underperformance through greater transparency and increased consequences.

** RIAA - Resposnible Investment Association Australasia

***ASIC - The Australian Securities and Investments Commission (ASIC) is the regulator of Australia's markets and financial services and ensures that Australia's financial markets are fair and transparent ASIC is now turning its attention to whether the ethical investments offered by funds are as green as they are claiming - a term known as Greenwashing. Read more about this here.

[i] Where results were available for that period of time 

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