I’ve talked a little about my retirement savings (“Superannuation” or “Super”) in August and noted that I’d be tracking performance regularly. The main reason for the analysis (reporting) is to ensure I’m getting adequate performance for the fees I’m paying. As I outlined in the article from August, we have three basic options for Super in Australia
i) manage the money ourselves either through a Self-Managed Super Fund or paid platform (lower fees, returns depend on your ability to select products or assets),
ii) Invest in an Industry Superfund (low cost funds available to you depending on which industry you’re a part of) or
iii) Invest in Retail Funds or via a Financial Adviser (higher fees for ‘professional management’).
Total retirement accounts grew to $31,767AUD including $6,475 invested in a Military fund I can’t shift until I retire. This amount is indexed to inflation making it barely worth analysing here. The balance is held in a Wrap Account and managed by an Advisor. The main advantage is that I have some control over what we invest in and I know who’s managing my money (we have met on several occasions before I moved interstate, and keep in touch on a yearly basis).
Performance Review of Wrap Account:
As a comparison, I compare my funds performance to the average or median Retail and Industry fund. Although the exact figures for 2015 aren’t out yet, it appears I will lag the median/mean fund in these categories just slightly. Over 3 years, I’ve lagged the average substantially. That said, I can’t judge too much over just 3 years.
The figure below shows the growth of $10,000 invested into Wrap account since inception. Whilst it has outperformed the ASX300 (top 300 companies on the ASX by market cap.) it has underperformed average and median retail and super funds.
To October 31st 2015, Retail Funds returned an average of 5.6% prior to advisor and administrative fees whilst Industry funds returned an average of 6.4%. As an estimate on fees, Retail fund fees normally run at an average 1.61% p.a. and Industry fund fees at 0.76% p.a. Adjusting the above figures Retail Funds return of 3.99% and an Industry fund return of 5.64% to October 31st 2015.
Update: ChantWest released its figures for FY2015 which indicated the median growth industry fund returned 6.7% and median growth retail fund 5.2% prior to fees.
For the year, my retirement account grew 4.10% net of all fees and taxes. This consisted of:
$1353.32 in income
$-198.54 in growth.
Fees for the year were 1.67% (slightly above average for a Retail Fund).
Annualised performance over 3 years is 7.37% (well below the average 3 year return of 12.7%p.a.).
Performance for each year is shown below with the median Industry fund out/underperformance in parenthesis:
2012: 20.82% (outperformed by 7.31%)
2013: 15.94% (underperformed 1.10%)
2014: 2.55% (underperformed 4.71%)
2015: 4.10% (underperformed 1.9-2.6% post/pre fees)
A more clear picture is painted by the chart below:
Wrap Account Composition:
The Account currently consists of 3 managed investment products, which returned the following for 2015
Novaport Wholesale Smaller Companies Fund: 5.78%
Pengana Emerging Companies Fund: 12.66%
Magellan High Conviction Fund: (2.77%)*
*Magellan’s fund was a new investment in October, so the short term figure represents only the 3 month return of the fund without distributions.
About the Funds:
Novaport Capital Smaller Companies Fund invests with a Value oriented philosophy in Australian equities outside the ASX100. Managers Alex Milton and Sinclair Currie have good track records and the fund makes up approx. 50% of the Warp Account. Managed by Steve Black and Ed Prendergast , the Pengana Emerging Companies Fund is another smaller companies fund. The fund selects 40-60 Australian/New Zealand businesses to invest into over the medium term and makes up approx. 12% of the Account. For greater global diversification, I invested approx. 30% of the Wrap Account in Magellan’s High Conviction Fund which holds just 8-12 international equities selected as trading at below their estimated intrinsic value.
(The remaining 8% of the Wrap Account is held in cash. Throughout 2015, up to 40% of the Wrap Account was invested in cash, which probably contributed to its relatively lower performance.)
As a point of interest, I’m swimming against the tide. According to ChantWest, Industry Funds have outperformed Retail Funds in all but 1 year since 2006 (and equaled their performance that year).
Overall, I’m left with some thinking to do. As I alluded to above, 3 year under-performance doesn’t tell me a lot. I wouldn’t invest in or sell an equity because of its 3 year performance (I would investigate poor performance however as it could be a sign others know something I don’t). In the same way, I don’t feel comfortable shifting my Super, attempting to chase superior returns in the short-term. In the long run, I’m intending to self-manage my retirement account once it reaches $50,000 provided I am confident I have adequate knowledge. But that’s some time off. At the moment, part of me feels as if I’m forgoing decent returns and paying a princely sum for it. However, you can see the range of returns vary substantially, from 2.55% – 20.82% with a standard deviation of 7.74%. This much variability makes it difficult to forecast the future accurately, I could easily leave the Wrap Account for an industry fund and find the mix would have outperformed for 2016.
Time will tell, but 2015’s returns are further food for thought.
Update: The chart above from ChantWest says a lot. I need to decide whether my adviser based fund will sustainably outperform a median industry fund over the long term. Unless I go out on my own and open a Self Managed Super Fund then it may be that parking my money in a ‘no-brainer’ industry fund is the smart thing to do. One of the other key risks with Super in general is legislation risk/access risks. At September 2015 the Australian Superannuation assets totaled is a $2tln business (two-trillion dollars!), with contributions of almost $105 billion in 2015. That successive governments might decide they would like to access some of this money (via taxes, levies etc) is a large risk, as is the risk they re-legislate at what age Australians can access their Super, pushing it out of reach of an average-life span (don’t laugh, this is exactly what retirement funds originally intended to provide access to your own money only if you lived well past a normal life expectancy!). The alternative may be to accumulate wealth as a private investor and be content paying higher tax in the short-term for greater control in the long term, leaving Super balances relatively low in the mean time.