Superannuation funds should embrace future

Competition between funds should be encouraged, long-term mediocre performance should not be accepted and funds should only ever be acting in members’ best interests.

During the recent budget Treasurer Josh Frydenberg flagged changes aimed at improving the efficiency, transparency and performance of an industry that should thrive on competition: superannuation.

Assured by the superannuation guarantee, the industry had become complacent. These proposed changes aim to bring about competitive forces within an industry which should thrive and encourage innovation.

While Australian investors, many investing for the first time through their super, have evolved since the introduction of the super guarantee, many participants in the industry have not. Competition between funds should be encouraged, long-term mediocre performance should not be accepted and funds should only ever be acting in members’ best interests. The changes in Your Future, Your Super aim to encourage this.

But rather than embracing the changes with a commitment to innovation, transparency and performance, the industry has, for the most part, responded with fears about the mediocrity of indexing and the potential for misleading comparisons.

Active investing, they say, provides investors with a way to ensure they are protected against the “drag of performance” arising from black swan events such as COVID-19. Time and again, however, the S&P SPIVA survey has shown that the majority of active managers provide no such protection, underperforming even as markets fall.

The most recent survey, which captures the COVID-19 volatility in March, highlights the difficulty most active managers have outperforming. The argument comparing active and passive is simplistic and wrong.

Passive investing has evolved to move beyond market cap, capturing factors such as value, quality, environmental, social and governance and high dividends. Just look at the vast array of smart beta exchange-traded funds (ETFs) available on ASX.

In a piece written for the CFA Institute Journal in 2017, Ronald Kahn and Michael Lemmon suggested that active managers need to evolve – or face extinction.

Arian Neiron,managing director Asia Pacific for VanEck. Picture: James Croucher

We think that superannuation funds and their consultants need to be a part of this evolution. They need to think beyond passive and active and continuously innovate to improve investor outcomes. Innovations in indexing in the age of big data should be being harnessed by our superannuation funds. They are not. This may take a recalibration or retraining.

Another goal of Your Future, Your Super is transparency. Again, look at the thriving ETF industry.

Super funds, like ETFs, should be upfront with investors about what is in their portfolios.

Australian investors are becoming more demanding and these changes will be the first of many.

The industry too should meet the challenge and innovate, be transparent and thrive on competition.

Investors should always focus on long-term performance and we believe that true alpha active managers will not just survive but they will thrive.

We are advocates of active management. The genesis of VanEck’s business is active management and a lot of our strategies are infused with the philosophy of active management, just done more cost-effectively and with 100 per cent transparency. Competition forces participants to strive for better.

The Darwinians would argue it’s survival of the fittest.

Arian Neiron is managing director Asia Pacific for VanEck.