2021 super returns: The best industry funds & important considerations

It is not unrealistic to expect your super returns to be over 20% for the financial year ended June 2021. Of course, this is a great outcome in what has been a tumultuous year. However, I would like to highlight some important observations and considerations.And the 2021 winner is…The table below sets out investment returns for the largest 8 industry funds based on a Balanced investment option (data from Lonsec). The table is sorted by 1-year returns, highest to lowest for the financial year ended June 2021. Hostplus achieved the highest return. However, AustralianSuper is the best performing fund over 3, 5, 7 and 10 years as highlighted.See table here.I have selected the relevant pre-mixed investment option that has between 60% and 76% of assets invested in growth assets e.g. shares. This is defined as a Balanced asset allocation. You will note however that some super funds don’t use the Balanced description – some call it Growth or Core and so on. This highlights that it is important to not rely solely on an investment option’s name. Instead it is important to examine the actual asset allocation of the option you are considering.This list of top 10 super funds includes all industry and retail funds (my list above only compared the 8 largest industry funds).Click here to view a similar comparison for a Growth investment option.Often, it’s impossible to understand how your money is investedOf course, it is basic common sense to make sure that you always understand how your money is invested. However, that can be challenging with some industry funds. Most people assume their money is invested in share and bond markets. However, some industry super funds invest a large amount of your balance in “alternative” investments.Alternative investments can include almost any type of investment that cannot be classified as shares, bonds, property or cash. Alternative investments include things such as infrastructure, construction and private credit, hedge funds, private equity, currency, commodities and so on. Industry super funds do not have to disclose any detail regarding these investments. In fact, any information is often value vague so it’s impossible to assess the underlying risk.The chart below (data from Lonsec) highlights that the amount each industry funds allocates to alternative assets. This ranges from 5% (UniSuper) to 33% (Hostplus).See chart here. Risks with alternative assetsThe advantage of listed assets, such as shares, is that price discovery occurs on a daily basis. That is, market participants (investors) often buy and sell stocks. As such, the current price of an investment reflects all publicly available information and the market’s views. It is a very transparent process. This gives investors comfort about what their investments are worth and consequently, how they are performing.However, many alternative assets are not listed assets e.g. shares in an unlisted company (i.e. private equity) or a large infrastructure project. As such industry super funds must periodically engage valuers to revalue these assets.Prior to starting ProSolution, I used to work for a Big 4 accounting firm preparing business valuations. I know all too well that My new book is available for pre-order now: Pre-ordering the book will help me get it into bookstores. So please do me a favour - please consider pre-ordering now - links and pre-order bonus are available here: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at [email protected]. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.