Industry funds outperform again

Bernard O’Connor
NGS Super

Annual statements are out, investment returns are in and it’s pleasing that industry funds have again, on average, outperformed bank owned retail funds.

The consistent outperformance over one, three, five, seven and 10 year periods shows that the investment strategy, governance structure and member-centric approach of industry funds have assisted millions of Australian workers to achieve a better retirement outcome.

Industry Super Australia Chief Executive, David Whiteley said: “Members of industry funds can rest assured that their retirement nest eggs are delivering superior returns over short, medium and long terms.

“Consistent outperformance by industry super funds over bank owned super funds reflects the differences between for profit and not for profit business models, which over the last two decades have seen vastly different member outcomes”.

It’s been a difficult year for financial markets with record low interest rates, high volatility and geopolitical unrest affecting global and local stock markets. Both the Australian and the international share markets produced a negative return. In spite of this poor result for share markets, the independent rating agency, SuperRatings, has calculated the rolling annual return for the last financial year for industry funds at 3.45%.

Bank owned super funds returned 1.74% for the same period giving an outperformance of 1.71% for the industry fund sector. The outperformance of industry funds for a 10 year period was even more impressive with a margin of 2.21% over retail funds.

The equal representation trustee model, as opposed to the for profit model where investment earnings are paid to shareholders as well as customers, has served industry fund members well.

This model, with 50% employee and 50% employer appointed trustees, has contributed to the success of industry funds and it is worth remembering that it was under attack last year when the government pushed for independent directors as a mandatory requirement for all superannuation boards. The bill was defeated in the Senate and no doubt the outperformance of industry funds was a significant factor contributing to the defeat.

Financial commentators have stated that industry funds benefit from a higher exposure to non listed assets such as property, infrastructure and private equity and a lower exposure to shares.

Industry funds have shown innovation in their investment strategy and have the ability to invest in various unlisted assets providing a lower level of correlation to the share market. Also since the principal parties who founded industry funds on a not for profit basis are usually union and employer based organisations – no profits are returned to the shareholders. This is the basis for the term “all profits to members”. Retail funds, on the other hand, face a constant tension between allocating dividends to shareholders and returns to their customers.

As a genuine industry fund representing the independent education and community focussed sectors, NGS Super outperformed both the not for profit and retail medians with an annual return of 3.62% for its default option, Diversified MySuper, in this challenging investment climate. This brings the five year return to 7.18% per year for NGS Super default option. Although down from the previous four years, it is a solid result in the current volatile investment market.

Have a look at the website for the results of all investment options and other information about your industry fund (www.ngssuper.com.au). No doubt all members and members of other funds will be checking out their annual returns at this time of year. Comparisons will be made and if you are not in an industry fund (or perhaps in a fund that passes itself off as an industry fund), now could be a good time to consider your options and financial future.