Comparing Super Fund Performance: How to Evaluate Returns and Choose Wisely

Choosing a superannuation fund with strong investment performance can add tens of thousands of dollars to your retirement balance over a working lifetime. Yet comparing fund performance is not as straightforward as it might seem. Headline return numbers can be misleading, and short-term performance often fails to predict future results. This comprehensive guide explains how to properly evaluate super fund performance, what metrics matter most, and how to make informed decisions that maximise your retirement wealth.

Why Performance Matters More Than You Think

The impact of investment returns on your retirement balance is enormous due to the compounding effect over decades. A fund returning 7 per cent annually will grow $100,000 to approximately $761,000 over 30 years. A fund returning 8 per cent annually will grow the same amount to approximately $1,006,000. That single percentage point difference results in $245,000 more at retirement. When you consider that even small performance differences compound dramatically over a 40-year career, the importance of choosing a well-performing fund becomes clear.

However, it is equally important to understand that past performance does not guarantee future results. A fund that topped the performance charts last year may underperform next year. The goal is not to chase the current hot performer but to identify funds with consistent, above-average performance over multiple time periods and market cycles. This requires looking beyond simple return numbers to understand the factors driving performance and whether they are likely to persist.

Understanding Returns After Fees

The most meaningful performance comparison uses returns after fees and taxes, as this represents what actually ends up in your account. Gross returns before fees can make high-fee funds appear more competitive than they actually are. The difference between a fund charging 0.5 per cent in fees and one charging 1.5 per cent in fees is significant, potentially $10,000 or more per year on a $1,000,000 balance. Always compare net returns to get an accurate picture.

The government's YourSuper comparison tool provides standardised performance data using returns net of fees and taxes for MySuper default products. This ensures apples-to-apples comparisons across funds. For choice products and different investment options within funds, comparison becomes more complex, and you may need to gather data from individual fund websites or independent research services. When comparing, ensure you are comparing similar investment options, as a high-growth option will naturally have different returns than a conservative option.

Comparing Over Multiple Time Periods

Evaluating performance over multiple time periods provides a more complete picture than any single period. Review returns over 1 year, 3 years, 5 years, 7 years, and 10 years or longer. A fund that consistently ranks in the top quartile across all these periods demonstrates sustained performance rather than a lucky streak. Conversely, a fund that topped last year's charts but languishes in lower quartiles over longer periods may have taken excessive risks or benefited from temporary circumstances.

Pay particular attention to how funds performed during market downturns such as the Global Financial Crisis, the COVID-19 market crash, and recent inflationary periods. Funds that limited losses during these challenging times while participating in subsequent recoveries demonstrate skilled risk management. A fund that captures most of the upside while limiting downside can deliver superior long-term returns even if it does not top the charts in every bull market year. Use our superannuation calculator to model how different return assumptions affect your retirement projection.

Understanding Risk-Adjusted Returns

Raw returns tell only part of the story. A fund achieving 10 per cent returns with wild volatility may be less desirable than one achieving 8 per cent returns with smooth, consistent growth. Risk-adjusted return measures like the Sharpe ratio indicate how much return a fund delivers per unit of risk taken. Higher Sharpe ratios indicate more efficient conversion of risk into return.

Consider also the maximum drawdown, which measures the largest peak-to-trough decline the fund has experienced. A fund with lower maximum drawdown provides more predictable outcomes and may be easier to stay invested in during difficult periods. Members who panic and switch to cash during market declines often lock in losses and miss subsequent recoveries. A fund that provides competitive returns with less stomach-churning volatility may actually deliver better real-world outcomes for many investors.

Comparing Like With Like

Accurate performance comparison requires comparing investment options with similar asset allocations and risk profiles. A high-growth option holding 90 per cent shares should not be compared to a balanced option holding 60 per cent shares, as they have fundamentally different risk and return characteristics. When comparing balanced options across funds, verify that each fund defines balanced similarly in terms of asset allocation.

Some funds have more aggressive asset allocations within categories than others. A fund's balanced option might hold 70 per cent growth assets while another fund's balanced option holds 55 per cent. The first will likely outperform during rising markets but underperform during downturns. Compare the actual asset allocations disclosed in product documentation rather than relying on labels alone. This ensures your performance comparison reflects genuine skill differences rather than simply different levels of risk taking.

The Role of Investment Style and Strategy

Understanding a fund's investment style helps explain performance patterns and predict future behaviour. Some funds use predominantly passive or index strategies, aiming to match market returns at low cost. Others employ active management, attempting to beat the market through security selection and timing decisions. Each approach has merits, and neither is universally superior.

Passive strategies typically offer lower fees and consistent market-tracking returns. Active strategies have the potential to outperform but also underperform if manager decisions prove incorrect. Many funds use a blend of passive and active strategies across different asset classes. Review how your fund invests and consider whether their approach aligns with your beliefs about markets and investing. A fund's investment philosophy should make sense to you, as this helps you stay committed during inevitable periods of underperformance.

Looking Beyond Returns

While performance is crucial, other factors also affect your outcomes. Insurance offerings, including premiums and coverage levels, vary significantly between funds and can substantially impact your take-home retirement savings. Member services, including advice, educational resources, and digital tools, affect your ability to make informed decisions and optimise your super strategy.

Fund stability and governance matter too. Large, well-established funds with strong governance structures are less likely to face operational issues or unexpected problems. Check whether the fund has passed the APRA performance test, which identifies funds that have consistently underperformed. Funds failing this test face restrictions on accepting new members and must notify existing members of their underperformance. This regulatory framework provides baseline protection against poorly performing funds.

Avoiding Common Comparison Mistakes

Several errors commonly undermine performance comparisons. Chasing last year's top performer is perhaps the most frequent mistake. Performance tends to mean-revert, and funds that dramatically outperformed often subsequently underperform as market conditions change or as the factors driving their success reverse. Looking for consistent performance over multiple periods is more reliable than chasing recent winners.

Ignoring fees when comparing performance is another common error. A fund advertising strong gross returns may deliver mediocre net returns once high fees are deducted. Similarly, comparing performance across different time periods or using different data sources can produce misleading conclusions. Ensure you use consistent, reliable data for meaningful comparisons. Finally, making frequent switches between funds based on short-term performance usually harms outcomes through timing errors and potential exit or entry fees.

Using Performance Data in Your Decision

Performance data should inform but not solely determine your fund choice. Consider performance alongside fees, insurance, services, and your personal needs and preferences. A fund with slightly lower returns but substantially better insurance cover may be the right choice for someone with dependents. A fund with digital tools that encourage engagement may deliver better outcomes for someone who previously neglected their super.

Once you have chosen a fund, avoid the temptation to constantly second-guess based on short-term performance fluctuations. All funds will have periods of relative underperformance. Review your choice annually or when significant life changes occur, but resist the urge to frequently switch. The transaction costs, potential timing errors, and administrative hassle of frequent switching typically outweigh any performance benefit.

Conclusion

Comparing superannuation fund performance effectively requires looking beyond simple headline returns to understand net returns after fees, performance over multiple time periods, risk-adjusted measures, and investment approach. The goal is identifying funds with consistent, sustained performance rather than chasing short-term top performers. Combined with consideration of fees, insurance, services, and personal needs, performance analysis helps you choose a fund well-positioned to maximise your retirement wealth.

Remember that past performance does not guarantee future results, and all investment carries risk. Use government resources like the YourSuper comparison tool for standardised data, and consider professional advice for complex situations. By taking the time to properly evaluate fund performance, you put yourself in the best position to benefit from decades of compound growth on well-managed investments.