Superannuation “fat cat funds” consistently underperform
Close to one-third of fat cat funds' returns are lost to fees.
Many of Australia's largest superannuation funds, predominantly managed by the big four banks, have underperformed and under-delivered over the past five years, earning the moniker "fat cat funds".
Stockspot's Fat Cat Funds Report 2016 analysed 3,820 Australian super funds with available data on performance and fees, totalling $587 billion.
The report groups super funds into two main categories:
- Fat Cat Funds: Funds that underperformed by more than 10% over the past five years.
- Fit Cat Funds: Funds that have over-performed by more than 10% over the past five years.
Researchers found that for the $59.43 billion managed by 638 different fat cat funds, $777.76 million was paid in fees this year. While this figure is less than the $791 million paid last year, the average amount paid per client is slightly higher (2.04%) than last year (2%).
In terms of measuring performance against fees charged, fit cat funds (10.68%) exceedingly outperform fat cat funds (7.26%) pre-fees. Fit Cat Funds average fees are lower and after-fee performance is higher among fit cat funds. Close to one third (28%) of fat cat funds' returns are lost to fees, while for fit cat funds the losses are less startling (12%).
The report reveals industry funds, on average, charged lower fees and generated higher after-fee returns than retail funds. Retail fund clients lost 17% of returns in fees, compared with just 8% for industry funds.
An average 30-year-old in a fat cat fund can expect to lose nearly a quarter (24%) of their super savings in fees. Men will fork out $285,208 in fees over a lifetime, while women will pay $232,514.
Analysing the data from an employment perspective, those working in mining, invested in a fat cat fund, will pay the most in fees ($427,482) over the course of a lifetime. Professionals in science ($319,790), finance & insurance ($309,087) and media ($300,727) also pay an exorbitant amount in fees, while retail workers ($207,126) and cafe & restaurant employees ($203,059) pay the least.
Stockspot awarded ANZ's superannuation arm, OnePath, "gold" for the third year running as part of its fat cat awards. OnePath's 239 fat cat funds charged $142.5 million in fees.
With 81 fat cat funds and $82.6 million in fees, AMP/AXA claimed "silver", while Westpac (BT), with 63 fat cat funds and $115.1 million in fees, took "bronze". CommBank's Colonial First State (50 fat cat funds) and NAB's MLC (32 Fat Cat Funds) received finalists mentions.
Of the $142.27 billion managed by 574 fit cat funds in the marketplace, $1.34 billion was paid in fees this year. Average annual fee charges rose from 0.72% in 2015 to 0.94% in 2016.
Investors Mutual took "gold" in the fit cat fund awards, possessing 75% fit cat funds. SG Hiscock and Company came in second with 70% fit cat funds and REST Industry Super was awarded "bronze" with 43% fit cat funds. Honourable mentions include, Vanguard Investors Australia (37%), Lazard Asset Management Pacific Co. (33%) and Legg Mason Global Asset Management (25%).
The majority of Australians believe they have the right to know where their superannuation is being invested, yet nearly $1 trillion of assets in Australia's fifty largest super funds remains undisclosed.