Regardless of super funds reporting their biggest loss in nearly two decades, fund managers received record fees.
More than $ 65 billion was wiped out by super balances, but fund managers were still paid about $ 15 billion.
The biggest losers were workers with their super in higher risk investment options such as Australian and international shares. Meanwhile, the biggest winners this year seem to be leaders of these stock funds. They typically charge higher fees than other leaders who are reasonable in view of their greater expertise (black joke).
Most people, however, have their Superannuation in a balanced fund, which lost on average 6.5 percent this year. While these fund managers skimmed off everything from 1 to almost 3 percent for doing the job.
The professional is expected to beat the market most of the time. Most of the time, they are not.
One of the fund industry's not-so-funny little problems is that most stock-fund managers can not turn the key benchmarks like the All ordinarie Index. The index represents the average. Yet, only about 20 percent of managers have beaten the index over the past 15 years.
That means the vast majority of you, through charges against your funds that are paying professionals for the privilege of earning section returns. If fund managers just threw darts at a stock list, you expect more of them to match the benchmark.
It is no small matter. Over time, poor performing funds take a big bite out of what you could have reasonably expected.
The sad fact is that fund investors are deck stacked against them when it comes to beat the average. Here's why:
1st Rates:
Fund managers never met a fee, they did not like. They include, but are not limited to, administrative fees, custodial fees, audit fees, directors' fees and professional services fees, marketing fees and sales commissions. Such "load" is not reflected in the official data on performance, but as an expense that cuts into your results.
2nd Turnover:
In the typical stock fund, 4 out of 5 stocks, which at the beginning of the year has gone by the end of the year. Trading costs dragging an extra number from a fund's gains.
In this indicates It reminds me of an article in the Australian Financial Review dated October 2000 entitled "Strategies and confessions of market professionals." The article profiles a glass of BT Funds Management's leaders called a "senior international economic strategist" who also had been a senior economist with the Reserve Bank of Australia, was a university medalist with a first class Bachelor of Economics and a Master of Science degree from the London School of Economics.
The manager was asked "it may be difficult to consistently get the call right? Are you often wrong?" The manager replied "even the cleverest analyst would be happy to correctly predict the potential 65% to 70% of the time. The key to great strategy is the ability to recognize the 30% to 35% of calls that are not working --- etc". Are you sure you want to back up that performance?
3rd Cash: The typical fund keeps 7 to 10 percent of its assets in cash to fund redemptions. The portion of the portfolio is a drag on performance when the stock market is hot.
Over long periods, it is inevitable that funds will trail the benchmarks by about 2 percentage points a year, which reflects their costs. The fee gorging that comes with actively managed funds have a lot to overcome.
And here is one of the two major reasons, I prefer ownership of shares - the volatility.
This property will not double overnight as shares can, but it will not halve overnight either!
Sun Tzu said it best in "The Art of War" about 2000 years before Christ's birth "The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity to defeat the enemy"
Neil Handley graduated as a Bachelor of Economics and Accountant. After some 20 years as a stock broker Neil turned to property development. He then acquired a controlling interest in a property development company listed on the stock exchange and became CEO. He has been involved in developing residential subdivisions, industrial subdivisions,shopping centres, office buildings and medium density residential dwellings in Sydney's north shore, Northern Districts, Parramatta and Liverpool areas and on the Gold Coast, Queensland. One office building was sold to the AMP for $25ml. Neil's company advises on building wealth via property. Go to http://www.specialstrategies.com
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