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After a wild ride on investment market during the financial year, recently tabled returns for a range of investment vehicles may enable investors to make broad comparisons to their own performance. 

-Best returns in 34 years for super funds 
-The income/yield segment of the LIC/LIT sector performed well
-Average returns of 25.52% for the hedge fund industry 
-Passive index products remain the dominant ETF category
-Up to 20% of MySuper funds may fail a performance test
 

By Mark Woodruff 

Investors tend to put aside some time in July to compare their investment performance against various benchmarks. Depending upon the investor’s portfolio construction, some benchmarks may be more relevant than others.

In terms of a benchmark for Australian equity markets, the ASX200 total return in FY21 was 27.8%, the strongest increase since the 28.7% return in 2006. Despite this, the ASX still lagged global markets. Global equities rose 35.8%, though the falling US dollar would have reduced global equity returns to 27.5%, if left unhedged.

However, apart from indices, there is an array of other investment vehicles against which to measure portfolio returns.

Impressive financial year results have recently been published for the hedge fund industry, and for listed investment companies (LICs) and listed investment trusts (LITs).

Meanwhile, Australia’s 13.5m super fund members had a stellar financial year, earning $520bn in investment earnings in the past 12 months, or almost $39,000 each. This is three times the amount of all the money everyone contributed into their superannuation accounts through the year.

Finally, fund flows and some performance figures have recently been released for exchange traded funds (ETFs) and exchange traded products (ETPs).

Let’s first examine the financial year performance for both LICs and LITs.

LICs and LITs performance

Both LICs and LITs are listed investment vehicles that offer exposure to a basket of underlying securities. Often these are equities, also listed on the stock market, though increasingly there are funds providing exposure to other asset classes, such as fixed income.

The investor base of the sector is made up predominantly of retail investors and SMSF trustees, many of whom are self-directed, and who rely upon the investment expertise of the LIC or LIT manager to guide their investments.

As at June 30, 2021, the LICs and LITs sector on the ASX had seen its market capitalisation rise 32% from a year ago. Australian equities rose 34.8%, while global equities rallied 30%.

This was driven by both the increasing value of investment portfolios and the share price of the LICs and LITs.

Ian Irvine, CEO of the Listed Investment Companies and Trusts Association (LICAT) noted “Investors who bought LICs/LITs when they were trading cheaply relative to asset backing in 2020 have been able to generate particularly high returns. Not only have they benefited from the upswing in the market value of shares generally, but they have also received a supplementary return as the LIC/LIT shares themselves returned to a more normal trading level relative to asset backing.”

The income/yield segment of the LIC/LIT sector performed well, with fixed income LITs continuing to pay unit holders a regular monthly income. Over the course of the financial year, market capitalisation rose by 21.9%. “In an economic environment where income and yield are hard to find, these LITs have continued to generate returns and income for their underlying investors,” Mr Irvine said.

Superannuation funds performance

Australia’s superannuation funds have delivered their best annual financial year returns in 34 years, according to research from Rainmaker Information, a leading provider of financial services data.

The Rainmaker Default MySuper Index is set to post 2020-21 financial year returns of 18%, after all fees and taxes. The only time superannuation annual returns have beaten this was just before the 1987 stock market crash. 

The average return over the past five years is 8.7%.

Driving returns were the 33% financial year return from listed property, 28% from both Australian and international shares and 20% from global infrastructure.

Offsetting this were lacklustre financial year returns of 3.6% from unlisted direct property, 0.2% from international bonds, 0% from cash,  and -0.8% from Australian bonds.

Rainmaker found that overall, super funds are on average outperforming their capital market indexes in international shares, property and fixed interest.

Super fund ESG investment managers are currently under performing some of the major ESG capital market benchmarks.

Up to 20% of MySuper funds may fail a performance test

Since 1 July 2021, MySuper funds have come under increased scrutiny to protect members against underperformance. From that date, the Australian Prudential Regulation Authority (APRA) will commence benchmarking tests for net investment performance.

MySuper funds act as a default account for people who don't choose their own super fund when they start a new job.

While the test won’t cover all super funds initially, it’s estimated that 90% of APRA-regulated funds for members in accumulation phase will be subject to the test within a year.

According to modelling by leading implementation manager Parametric, as many as 20% of superannuation funds may fail the ‘Your Future, Your Super’ performance test in any given year.

Each year APRA will construct an individual benchmark for every MySuper product based on the product’s asset allocation and each product will then be compared against its benchmark.

Products that underperform their net investment return benchmark by -0.5% per year over an eight-year period will be classified as underperforming.

Trustees whose products fail the test will be required to notify members in writing and products that fail the test two years in a row will not be permitted to accept new members until their net investment performance improves. Alternatively, they may hold up the white flag and merge with another fund.

Hedge funds performance

The average return for the hedge fund industry for the financial year was 25.52%.

In looking at more recent performance, the six-month calendar year-to-date (YTD) return is 9.22%, the best first half performance since 2009 according to eVestment, a global leader in institutional investment data and analytics.

Equity focused hedge funds were among the strongest performers, returning an average of 12.16% year to date. Among sub types, Equity-Financials and Equity-Technology funds achieved average returns of 16.67% and 8.09%, respectively.

Commodities-focused hedge funds yielded a year to date 15.22% return, with Equity-Energy funds achieved 16.90%.

In terms of region, India focused hedge funds are leading the industry for first half performance, with average returns at 28.44%.

ASX-listed ETF’s fund flows and performance

BetaShares, a leading manager of exchange-traded funds traded on the ASX, estimated funds under management (FUM) for Australia’s ETF industry of around $115bn for the end of 2021, based on 95bn at the end of 2020. However, given industry growth of 22%, or 20bn, for the half year, the revised expectation is now for a total in the range of $132-$138bn.

Net new money for the half year accounted for $8.8bn of the $20bn increase in FUM, the balance being asset value growth. 

The top two issuers (Vanguard and BetaShares) received around 65% of the industry flows, compared to 53% in 2020.

In terms of flows, Global equities products dominated, receiving more than three times the flows of the next biggest category, Australian equities.

Passive index products remain the dominant category by a wide margin, and took in the vast majority of flows. Meanwhile, the top three active ETFs exhibited a narrow breadth, representing more than 80% of the category’s flows for the half.

The best performing exposures for the half year came from the Crude Oil Futures ETF ((OOO)), with a 50% return, followed by the Geared US Shares Fund ((GGUS)), which notched up a 34% return.

In what has been a real change of fortunes in 2021 to date, Magellan’s flagship Global shares fund sustained the highest amount of outflows in the industry for the half, with its Infrastructure fund also appearing in the top ten funds for outflows.

Global ETFs and ETPs

Investors have tended to invest in equity ETFs/ETPs during June 2021 and in the first half of 2021, in preference to fixed income and commodity ETFs and ETPs.

Assets invested in ETFs and ETPs listed globally reached a record US$9.35tr at the end of first half of 2021, a rise of 17%. Meanwhile, assets invested in US ETFs/ETPs and European ETFs/ETPs grew by 19% and 15.6%, to US$6.51tr and $1.484tr, respectively.

At the end of this period, the Global ETFs and ETPs industry had 8,977 products, from 556 providers listed on 77 exchanges in 62 countries.

June inflows for global ETFs

Globally, substantial inflows can be attributed to the top 20 ETFs by net new assets, which collectively gathered $41.14bn during June.

The US-listed Invesco QQQ Trust, [ticker code: QQQ], had the largest net inflows in June. The ETF is based on the Nasdaq index and under most circumstances consists of all stocks in the Index. Net inflows for June were $6.16bn, as shown in the table below.

Top 20 ETFs by net new inflows June 2021: Global

June inflows for global ETPs

Globally, the top ten exchange-traded products by net new assets collectively gathered $1.37bn over June. 

The US-listed iShares Gold Trust, [ticker code: IAU], gathered $262m, the largest net inflows for June.

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