Can the amateurs managing their own super funds outperform the professionals who run the large super funds?
It's an important question, as the prime motivations for those starting their own funds, according to a recent study by the Centre for International Finance and Regulation, is "improved returns".
The same study found those running their own funds don't track the performance of their funds against any conventional published benchmark or returns objectives.
Researcher Rainmaker has developed the SuperGuard 360 Performance Indices, which compare the typical DIY fund with the typical MySuper fund - the default investment options of the large funds for those who don't choose who manages their super.
To produce the comparison, Rainmaker took the asset allocation of DIY funds as reported to the Tax Office and the asset allocations reported by MySuper investment options to the Australian Prudential Regulation Authority.
It crunched the numbers going back up to 10 years as if each type of fund had invested according to the typical asset allocation.
As super is a long-term investment, it's the longer-term performances that should get most attention.
Over 10 years, there's hardly any difference between the performance of not-for-profit funds, such as industry funds, and DIY funds.
Each produced an annual average return of about 5 per cent, with DIY funds having the slightest edge.
But retail funds, those run by the banks and insurers, produced a return of 2.9 per cent.
Let's see what that means for retirement savings. Assuming that $200,000 was in super 10 years ago, if the money was with a typical SMSF or not-for-profit fund, the account balance would be about $330,000.
If the $200,000 was with a retail fund, it would be worth about $280,000.
Chris Page, the managing director of Rainmaker, says the indices help to dispel what he calls the myth that self-managed super funds don't know what they are doing and that they should be leaving it to the professionals.
The almost identical returns over 10 years of SMSFs and not-for-profit funds have been achieved using very different asset allocations.
For example, DIY fund trustees generally have a much higher allocation to cash and to property than do large funds, which tend to have higher weightings to shares and, in particular, to global shares.
Industry funds were helped during the worst of the GFC by their high exposure to unlisted investments, such as infrastructure.
Over five years, not-for-profits are clear winners with an annual average return of 9.9 per cent.
That beat not only retail funds' return of 8.8 per cent but also DIY funds' 8.3 per cent return.
When sharemarkets do well, as has been the case for most of the past five years, funds with higher exposures to shares have done better.
Of course, there are some important caveats to this.
These are only the typical returns of each type of fund and individual funds will do better and worse than the typical fund.
Also, these are point-to-point returns. Change time-frames, and depending on the market conditions, the results will likely alter.
Follow John Collett on Twitter
