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Is your super fund underperforming and hurting your retirement?

It’s hard to know which super funds are doing well and which are underperforming, whether you’re a financial pro or just an average Aussie.

But things have just got a little bit easier after the Australian Prudential Regulation Authority (APRA) released its analysis on Tuesday.

APRA has put together what it calls the MySuper Product Heatmap of Aussie superannuation funds and found that 19 super funds are underperforming.

As reported in the Australian Financial Review (AFR), these 19 funds have 2 million accounts and $70 billion in assets under management and according to Superannuation Minister Jane Hume they now have “nowhere to hide”.

Is your super fund underperforming?

Amongst the underperforming super funds are a number of Westpac Banking Corp (ASX: WBC) offerings in the latest blow for the bank.

In terms of 5-year net investment performance, there were several of the usual suspects in the top performers list.

AustralianSuper and HostPlus delivered annualised returns of 9.48% p.a. and 9.65% p.a., respectively. Other top performers over the last 5 years included Unisuper (9.36% p.a.) and BEST Superannuation (9.63% p.a.).

Of course, past performance is not a reliable indicator of future performance but the APRA heat map is a big step forward for transparency and comparability.

At the very least, it provides an easy way to identify underperforming super funds and encourage better performance.

How you can protect your retirement savings

It can be tough to find out what the best super fund options are for you, given the numerous options available.

For your average Aussie, a low-cost fund is the best option and can increase your chances of generating long-term returns.

Industry funds tend to have low fees, but even amongst these there can be underperforming super funds.

It’s also important to remember investing is about more than just returns. It’s important to consider the risk-return trade-off in any investment decision.

That’s where the APRA heatmap can have some issues, because different funds have different default “growth asset” allocations. These tend to be aggressive assets that have higher risk but theoretically higher return.

Analysing the true cost of super funds is still opaque, as the management fee figures quoted can be misleading. Super funds can have a low headline fee but then have “hidden” fees that add up over time.

All in all, it’s important to know your own risk and return goals and choose an appropriate strategy. And of course, avoid the underperforming super funds where possible.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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 Scott Phillips.

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