LONG-term numbers, or the selective use of statistics, does nothing to help those who have lost considerable amounts of money. With double-digit negative returns confirmed for this financial year, super fund members are looking for answers and an idea of where they should be putting their money in the year ahead.

While surging local and international share markets have brought some welcome relief to investors, it has not proved enough to avoid a double-digit negative return for the 2008-09 financial year, with most funds expected to post losses between –10% and –14%.

This will confirm 2008-09 as the worst-performing year for superannuation since it became compulsory in 1992.

This, following on from a median loss of –6.4% last financial year, reflects the unprecedented impact the global financial crisis has had on all Australians’ short and long-term saving positions.

While the GFC has decimated many retirees’ nest eggs, the longer-term strategy of balanced options appears to be holding up with five, seven and 10-year annual returns all hovering around 5% per annum compound growth. Despite 2008-09 recording the third negative return for super funds this decade, $100,000 invested five years ago would still have grown to $126,115, while the same investment made seven and 10 years ago would have grown to $140,522 and $163,978 respectively.

However, the quoting of long-term numbers or the selective use of statistics does nothing to help those who have lost considerable amounts of money, particularly those close to or in retirement who have limited opportunity to make good their positions. So, is there someone to blame for these returns or should they be taken as part of the long-term nature of superannuation?

In short, and despite the temptation to blame the super industry itself, reality says that nearly all consumers have had, for over a decade now, the ability to switch investment options within their own fund. Most pre-retirees (82%) appear, whether through apathy or intentionally, to sit contentedly in balanced and growth-style investment options. Just 3.8% of monies have been moved away from these options in the last 12 months.

There appears to be massive inconsistency in Australians’ approach to financial products. Where a mortgage is concerned, Australians will spend countless hours analysing the terms in the hope of saving money over the long run. Most will also accept that markets will move over time and take the odds to a variable interest rate. A minority percentage will lock in fixed rates to protect their short-term position.

For those who take the variable (and higher-risk) rate, they are betting over time that they will pay less than those who choose the fixed rates and are prepared to possibly pay more for the certainty. The structure of super returns is similar to mortgage lending.

If you are happy with a variable rate and can risk a short-term hit for the possibility of long-term gain, then a diversified or aggressive portfolio is arguably the way to go. If you need to protect your position in the short term, then a cash option is your best bet.

Consumers need to understand that everything other than cash in a super fund comes with a degree of risk. The thing with a super fund is that the bet between fixed and variable is a much bigger bet than with a mortgage, resulting in much bigger gains and losses, as we have seen this decade. Members can, however, dictate just how big that bet is by getting involved in and better understanding their investment option.

Once Australians have grasped the concept of risk and reward (or variable versus fixed), then comes the even more daunting task of selecting an appropriate super fund. Many Australians now have the opportunity to select, retain and/or change their own fund throughout their working life, rather than be enrolled automatically by their employer as used to be the case. But choosing a fund can appear to be even more difficult than selecting a mortgage.

Massive disclosure documents serve only to confuse the issue and create a marketing competition between funds to see who can promote themselves best. The real issues of costs and performance often become difficult to extract and compare. But selecting the right investment option in the wrong fund can mean significant variations in returns.

The tables below show that the best-performing balanced option has lost 7.75% for the 11 months ended May 31, 2009, while the worst comes in at –21.93%, a differential of over 14% for the period. The capital stable option shows an even more dramatic range with a high just over 4% to a low of more than –16%. So, for those who assume that all funds are the same, this demonstrates that nothing could be further from the truth.

In terms of overall performance, the last five years has been an intriguing period in which to assess super fund performance, with three incredibly strong years followed by the two worst years on record. The following figures demonstrate those funds that have been able to keep it all together throughout these unprecedented times. The best-performing funds of the last five years are as follows:

Top 10 balanced investment options

1 Buss(Q) – Balanced growth 7%
2 Catholic Super – Balanced 6.5%
3 HOSTPLUS – Balanced 6.3%
4 CareSuper – Balanced 6.3%
5 OSF Super – Mix 70 6.1%
6 Cbus – Core strategy 6%
7 AustralianSuper – Balanced option 6%
8 Club Plus Super – Balanced option 5.8%
9 NGS Super – Diversified 5.7%
10 MTAA Super – Balanced 5.6%

Top quartile 5.4%
SuperRatings’ Median Index 4.8%
Bottom quartile 3.2%

Top 10 growth investment options

1 OSF Super – Mix 90 6.4%
2 HOSTPLUS – Shares plus 6.2%
3 Catholic Super – Moderately aggressive 6.1%
4 REST – Core strategy 5.9%
5 REST – Diversified 5.8%
6 UniSuper Accum (1) – Growth 5.6%
7 ESI Super – Growth option 5.4%
8 CareSuper – Growth 5.3%
9 AustralianSuper – High growth 5%
10 Health Super – Long-term growth 4.9%

Top quartile 4.8%
SuperRatings’ Median Index 3.9%
Bottom quartile 2.3%

Top 10 Australian shares investment options

1 Catholic Super – Australian shares 9.1%
2 HOSTPLUS – Australian shares 8.6%
3 REST – Australian shares 8.5%
4 AUSCOAL Super – Australian shares 8.2%
5 Telstra Super Corp Plus – Australian shares 8%
6 Intrust Core Super – Australian shares 7.9%
7 Mercer Super Trust – Mercer Australian shares 7.8%
8 ING Corp – ING Australian shares 7.8%
9 Westscheme – Australian shares 7.8%
10 CareSuper – Australian shares 7.4%

Top quartile 7.5%
SuperRatings’ Median Index 7.1%
Bottom quartile 6.2%

Note: All results are net of fees and tax. Balanced funds are those options with 60-76% of assets in growth-style investments, while growth fund options are those with 77-90% of assets in growth-style investments.

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