Your Money

Are Active super fund managers worth the extra fees?

- July 5, 2024 2 MIN READ
Egg in nest

There is an age old ‘Active versus Passive’ argument within the investment community about whether the extra fees you pay super fund managers – who trade your portfolio aggressively- are worth it.  

Compared with just putting your money in a fund that simply replicates a market index and charges a much lower fee, who comes out better?

Trading platform, Stockspot, has studied the performance of both and found that most default super funds, despite charging billions on fund manager fees, actually underperformed by an average of 4-5 per cent when compared to diversified index funds, which simply track the market as a whole.

Stockspot has analysed the data and found the following results for typical default super options:

  •  Balanced super funds, containing 41-60 per cent growth assets, returned an average of 7-8 per cent over the financial year when indexed balanced super funds returned 12-13 per cent – a difference of 4-5 per cent.
  •  Growth super funds, with 61-80 per cent growth assets, have seen returns ranging from 9-10 per cent over the financial year when indexed growth super funds returned 14-15 per cent – a difference of 4-5 per cent.

According to Stockspot this significant difference stems mainly from two factors:

  •  Active stock picking has performed poorly, with the majority of fund managers, particularly in global shares, failing to keep pace due to their underweight positions in large-cap technology shares. The latest research by S&P SPIVA shows that 81 per cent of global fund managers underperformed the market index over 1 year and 94 per cent over 15 years.
  •  Active funds have been heavily invested in underperforming private assets, notably unlisted property. Although some super funds have discontinued these as separate investment options, they remain a substantial part of their default funds.

The most successful assets this year were indexed global shares, which increased by 29 per cent, and gold, which rose by 23 per cent. Funds with higher allocations to these assets generally fared better.

 

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