Big four banks and AMP Limited dominate worst super funds

Credit: Tripp

An annual report looking at the performance of 3,800 super funds over the past five years shows that the big four banks and AMP Limited (ASX: AMP), dominate the list of poor performers.

Research conducted by Stockspot shows that Australians pay out $23.7 billion in investment fees to superannuation funds each year, significantly reducing our balances when it comes time to retire.

Stockspot’s research has shown that there were 638 fat-cat funds, managing more than $59 billion in super. Fat cat funds are those that failed to beat their benchmarks over one, three and five years. In other words, they are consistent underperformers.

Flabby cat funds are those that have more often than not performed worse than the category average. Fair cat funds are those in the middle of the pack, while fine cat funds are those that beat the average fund more often than not, while fit cat funds are those that outperform the average cumulative return over one, three and five years, including outperforming by more than 10% over the entire 5-year period.

In what is an unsurprising result, funds that charge the lowest fees tend to be among the best performers, while those charging more than 2.5% tend to be among the worst.


Source: Stockspot report

Fat cats have average 5.76% after fees, while Fit cat funds have averaged 9.39% over 5 years. Fat cat fund average just over 2% in fees, while Fit cat funds average fees of 1.29%.

What paints an even more drastic picture is that 39% of retail super funds, mostly made up Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) and AMP products are Fat cat or Flabby cat funds. Just 13% of industry (not-for-profit) funds fall into those two categories.

At the other of the scales the results paint a similar picture. 38% of industry funds are Fit cats, while just 14% of retail funds make it into the Fit cat category.

ANZ (OnePath), AMP/AXA and Westpac through BT Investment Management (ASX: BTT) hold the top 3 positions for the most fat cat funds. ANZ (OnePath) has 239 Fat Cat Funds, with AMP/AXA holding 81 Fat Cat Funds. Commonwealth Bank’s Colonial First State and NAB’s MLC round out the top 5.

Investors Mutual, SG Hiscock and Co, and REST Industry Super are the top 3 in the Fit Cat awards with the most Fit cat funds.

Foolish takeaway

It seems fairly clear that if you have your super in a retail super fund, your odds of beating the market appear low while if you are in a low-fee fund, the opposite is true.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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