Retail/industry fund performance gap just 0.7%

The investment performance difference between retail and industry funds over the 12 years to June 2016 would be shown to be a mere 0.7 per cent if the Productivity Commission (PC) chose to use a performance methodology net of investment fees and tax, according to ratings house, Chant West.

In a submission filed with the PC this month, Chant West has strongly argued that the methodology used by the PC – aggregate whole of fund data – is flawed.

“As an example, a fund with an older member base will tend to have fewer members and a lower proportion of its assets under management in the more growth-orientated investment options than a fund with a relatively young member base,” the submission said.

“Over the long term, based on whole-of-fund performance data, you would of course expect the fund with the young member base to have a higher return. However, in no way does that reflect how well the funds are managing the individual investment options.”

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The Chant West submission then compared its preferred methodology with that used by the PC and said that the performance difference between industry and retail funds from the actual product level data was 0.7 per cent.

It said that by comparing the returns between the methodology used by the PC and that used by Chant West it could be seen that the returns for the not-for-profit segment were reasonably close, with Chant West’s median 0.2 per cent per annum higher.

However, it said the returns based on APRA whole-of-fund data were significantly lower than Chant West’s median for retail funds and the overall industry as a result, partly due to the deduction of higher administration fees and partly due to retail funds including a wider range of options with different investment objectives.

Performance from the Productivity Commission Report based on APRA data (% pa)

Fund category                          12 yrs to June 2016

All APRA Funds                          5.9%

Not-for-Profit Funds                 6.8%

Retail Funds                               4.9%

Note: Performance is shown net of investment fees and tax. It is before administration and adviser commission.

Chant West Growth Fund Performance (% pa)

Fund category                            12 yrs to June 2016

Overall                                         6.7%

Not-for-Profit                             7.0%

Retail                                            6.3%

Note: Performance is shown net of investment fees and tax. It is before administration and adviser commission.