Super fund size not a predictor of performance: Frontier

Super funds’ asset allocation is a more influential element on their performance than their size or scale, research by Frontier Investment Consulting concludes.

Frontier’s analysis noted that some of the best performing super funds across the 2020/202 financial year were among the smallest names in the industry, with seven of last year’s top performers managing less than $30 billion and five of these running less than $15 billion.

With the first half of the period being market by positive performance and the second by negative,  Frontier’s analysis showed funds needed to do well in both to appear at the top of the performance tables.

“Funds with a larger allocation to unlisted assets typically performed best,” the research said. “The impact of periodic  valuations of unlisted assets has helped portfolios hold up during the ‘risk-off’ sentiment of the last 12 months. This was a much stronger determinant of outcomes than fund size.”

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Frontier highlighted First Super and MIESF as two of the ‘smaller’ super funds that outperformed their larger peers more recently. Both posted positive returns over the 12 months under review, during which time the median return for the industry was a loss of around 3%.

However, the group added that the correlation between size and poor performance appears to hold up more when the worst performers are looked at. All of the weakest performers in the analysis have assets under $5 billion.

Looking over 10-year, Frontier said there was a stronger correlation between size and returns.

“While it is clear 10 years is a more meaningful time period to review fund performance, what is not clear is whether larger funds have better performance because they are large or whether they are large because they have better performance,”, Frontier said.

“Just as not all small funds underperform, not all large funds are at the top of the performance charts.”