Stockspot.com.au’s 7th annual Fat Cat Funds Report has analysed 600 of the largest superannuation funds in Australia to find the best super funds – and the worst.
Super funds were assessed on how they performed, after fees, compared to other super options of similar risk over 5 years.
We first published the Fat Cat Funds Report in 2013 to bring an independent voice to superannuation. We wanted to name the funds taking advantage of Australians unwittingly paying away their hard-earned retirement funds in superannuation fees.
Our aim is to help Australians understand the factors that matter most when they choose a super fund. By shining a light on both the best and worst super funds we hope to drive some change and:
- Encourage Australians to take notice of their superannuation, be more engaged, consider their options, and stop letting the Fat Cat Funds get away with not delivering better results for their hard earned money;
- Prompt funds to lower their fees and improve their performance; and
- Lobby the Federal Government to improve fairness and transparency.
Did you know? If your super fund charges you more than 1% in fees per year, you could be $200,000 worse off when you retire.
2019 Fat Cat Fund Findings
Stockspot’s Fat Cat Funds Report 2019 Report has once again found that fees make all the difference when it comes to your retirement savings.
We have rated funds based on how they have performed after fees over five years compared to funds in the same risk category. Based on this we have singled out two groups of funds which warrant extra attention, the top super funds and worst super funds in Australia in each category.
The usual suspects
ANZ/OnePath topped our list for the seventh time running, with the most Fat Cat Funds. They controlled 27% of the worst 40 funds, up from 25% last year. For seven years we have pressured ANZ to respond by reducing the fees in these funds or move clients to better performing options.
IOOF has recently announced to purchase the ANZ/OnePath business from ANZ, so we hope they will do what ANZ failed to do – reduce the fees and improve the performance of their funds.
ANZ share the honours this year with AMP who also had 11 Fat Cat Funds.
Poor fund performance comes mostly from high fees
The impact of high fees is more apparent every year as funds find it more and more difficult to generate strong returns to make up for the impact of these high fees.
|Average Fit Cat Fund Fee||Average Fat Cat Fund Fee|
Who is most affected by fees?
High fees impact people of all ages. However, the burden is most apparent for those who have more years of work ahead of them, that is today’s millennials (people in their 20s and 30s).
You’ll be about $200,000 better off over your lifetime if you’re in a fund charging less than 1% than someone paying 2%.
Fees are also an important consideration for those approaching retirement. As you reach closer to your retirement age, your portfolio generally becomes more conservative. Fees take an even larger slice of your returns in a moderate or conservative super fund.
The bottom line is, regardless of your age, fees matter!
Why don’t super funds index?
Investing in an index means buying shares in all of the largest companies, according to their size. For example, the S&P/ASX 300 is an index which tracks the largest 300 stocks on the Australian share market.
Investors can access an index through an index fund or exchange traded fund (ETF) at a very low cost. Because indexed portfolios are low cost, they beat almost all higher cost funds over the long run. Investing is one of the few places where the more you pay, the less you get. This notion is supported by academic and empirical research in Australia and overseas.
A Stockspot portfolio which is made up of low-cost index funds has done better than about 90% of growth and balanced super funds over the last five years after fees and tax, including the largest retail and industry funds.
The more conservative Stockspot portfolios have done better than every moderate and conservative fund in Australia!
Index funds on average beat 90% of super funds. Not one moderate or conservative fund was able to beat Stockspot’s most conservative portfolio.
Investment option returns after investment fees and accumulation super taxes
|Growth||1 Year||3 Years (p.a)||5 Years (p.a)|
|Average Super Fund||6.9%||7.9%||7.0%|
|Stockspot Topaz portfolio||10.9%||10.9%||8.6%|
|Vanguard Growth Index||9.3%||9.0%||8.5%|
|Balanced||1 Year||3 Years (p.a)||5 Years (p.a)|
|Average Super Fund||5.9%||6.0%||5.6%|
|Stockspot Turquoise portfolio||10.5%||8.3%||7.2%|
|Vanguard Balanced Index||9.0%||7.3%||7.3%|
|Moderate||1 Year||3 Years (p.a)||5 Years (p.a)|
|Average Super Fund||5.3%||4.7%||4.5%|
|Stockspot Sapphire portfolio||10.4%||7.7%||6.8%|
|Vanguard Conservative Index||8.0%||5.4%||5.8%|
Superannuation managers can easily access index funds, yet many choose not to. Why? We believe its because of the conflicts of interest that still remain in the superannuation industry, despite the Productivity Commission and Royal Commission into Banking Misconduct in 2018.
All of the players in the super game have a vested interest to appear to be ‘active’ in making adjustments to their recommendations from year to year. Consultants to superannuation funds want to earn recurring fees, and fund managers need a reason to justify their high six or seven figure salaries.
Almost invariably, assuming funds have the right long-term asset allocation in place, the best course of action is no action – to do nothing and to leave their fund as-is.
Simply investing in the right mix of low-fee index funds would reduce these high fees whilst delivering stronger returns than almost all actively managed super funds over the long run.
We continually advocate that boring investing is brilliant. The millions of working Australians in default super funds would benefit greatly if all their super money went into a low-cost index fund.
Keep the Fat Cat Funds away from your super
Too many Australians are unaware of the devastating impact high fees have on their long term retirement savings. Our analysis shows that there is approximately $7 billion sitting in the largest 40 Fat Cat Funds, costing Australians $150 million in fees every year!
The Royal Commission into Banking Conduct and the Productivity Commission has surfaced some of the reasons people end up in poor performing funds.
When financial advisers, trustees, executive teams, fund managers and consultants have financial incentives that are not aligned with the people they represent – the fund members pay the price when they retire.
With over $30 billion spent on superannuation fees every year, it is a well paid gravy train for many who work in the superannuation industry.
We hope that the recommendations that came from the Royal Commission and Productivity Commission lead to changes to the superannuation system which results in:
- fewer conflicts of interest between fund managers and their members
- more transparency in fees charged and performance; and
- overall lower fees for Australians
Australia’s superannuation system is something we should be proud of, yet in its current state many Australians retire without the means to support themselves.
Australia’s superannuation system is the fourth-largest private pension system in the world and is expected to increase, with the superannuation guarantee gradually rising to 12% by 2025.
We encourage Australian’s to be more engaged with their superannuation nest egg, and again we urge the Government to take the steps to put every day Australian’s best interest at the forefront of the superannuation system.
We hope you find the Fat Cat Fund Report helpful for understanding what matters most when selecting any investment option, including the right super fund for you.