Why I dumped my industry super fund

TONY BOYD

It is an awkward time to be talking about the strong performance of my self-managed super fund given the correction occurring in global markets and the talk of possible recessions here and in the United States.

But the strategies that have delivered long-term returns will not change – keep cash on hand to take advantage of opportunities, continue to diversify the asset allocation, look to asset quality as the main driver of stock picking and don’t get too caught up in the short-term panic situations.

When I first decided to write about my self-managed super fund more than a decade ago, a senior journalist at The Australian Financial Review warned me it was foolhardy and bound to backfire.

He said the fund could collapse in value because of poor investment decisions thus causing damage to my reputation and the good name of the Financial Review.

My rejoinder was that it would surely be helpful for the paper’s readers to have a regular detailed analysis of what you can achieve when you dump a mediocre industry super fund and do your own thing.

At the time of this conversation in 2012, my industry fund, Media Super, had just been through a terrible period with a succession of poor returns caused by the global financial crisis. It had delivered negative 0.43 per cent for the year to June 2012, minus 0.67 per cent a year for five years and positive 4.93 per cent a year for 10 years.

I took the sage advice of my colleague and held off writing about my SMSF until there were some decent runs on the board.

The genesis of the SMSF was not just the desire to boost the returns. My partner and I wanted to pool our financial assets, be positioned for the transition to retirement, access products only available to sophisticated investors and, for the first time, seek professional financial advice.

The first article about the SMSF appeared in 2019 under the banner of the Chook Super Fund. It revealed a consistently strong performance against index benchmarks and against the Media Super default growth option.

Now, six years after that first article, I can report that there has not been an ominous day of reckoning. In fact, despite all the volatility in financial markets caused by COVID-19, the deterioration in geopolitics and wars in Ukraine and the Middle East, the fund is continuing to deliver solid returns.

In the year to June 30, my SMSF returned 14.21 per cent (net of fees) compared with 8.35 per cent for Media Super’s default Growth fund. Over the past 10 years my SMSF’s annual net return is 9.37 per cent compared to 7.73 per cent for the Media Super default growth option.

Thanks to the benefit of compound interest, that difference in performance of about 1.64 per cent a year over a decade means I have a significantly larger nest egg than the one I would have had if I stayed with Media Super.

Seeking professional advice from Charlie Viola of Pitcher Partners Wealth was a smart move. It resulted in the construction of an investment portfolio guided by the following principle – have a long-term strategy of holding good quality companies that generate income through the cycle.

Over the past decade, Viola has encouraged the trustees to diversify into defensive alternatives, property, private equity and high-yielding fixed income.

He says the stellar outcome in the fund in 2024 was in global shares with a 27 per cent return that outperformed the MSCI benchmark by about 7 per cent. ‘‘We have remained fairly consistently at neutral or above weight in global equities with an overweight positioning in AI and tech,’’ he says.

‘‘Our biggish position in Loftus Peak helped enormously as it punched out a return of about 41 per cent for the period. And our decision to hold Apple, Alphabet and Toyota helped as they all generated returns above market.

‘‘One of the more speculative holdings in Iress Energy also bounced back strongly as its focus started to move towards AI data analysis. It’s finally looking like a good investment for the fund as the guys there execute on their infrastructure plans.’’ Iress has crashed 30 per cent since June 30.

Viola says a key reason why the SMSF bested Media Super is that ‘‘we have basically sought to generate return via growth style assets, which have been in favour despite rising rates and all other factors’’.

‘‘Even our fixed-interest exposure is real asset-backed, which in my view is a better way to run money than traditional bonds where yields are low, liquidity is poor and spreads are determined by brokers generating fees,’’ he says.

It should be noted that the asset allocation range of Media Super’s default growth option could have accommodated the asset allocation of my SMSF. Also, Media Super has lifted its game since 2012 thanks to a quarter of the fund being invested in infrastructure and alternatives.

Another reason I am glad I dumped Media Super is that I don’t have to spend super savings money on sponsorship projects at the CFMEU and the Master Builders Association. Also, our SMSF does not have a large marketing budget.

Media Super became part of the $94 billion Cbus Super empire in 2022, bringing the fund’s members into the orbit of Cbus’ conflicts of interest in the commercial property sector.

I am glad to be free of a governance model that struggles to bring in fresh talent. Cbus chairman Wayne Swan has worked to appoint new directors but his decision to bring back onto the board of Cbus the former national secretary of the CFMEU, Dave Noonan, to represent the CFMEU breaks all the rules of good governance.

Noonan was a director of Cbus from 2006 until December 2021, a 15-year stint that clearly ignored the ASX corporate governance principle that directors should not serve on a board for longer than 10 years.

Even 10 years is arguably far too long to be on a board, according to respected business leader Catherine Livingstone, who was formerly chair of Telstra and Commonwealth Bank of Australia.

She told the Australian Institute of Company Directors’ annual summit in Melbourne in March that it was time to have a conversation about moving ‘‘away from board tenures of nine to 20 years and instead normalise terms that are six years or less’’.

When he rejoined the Cbus board, Noonan also returned to the board of Cbus Property, one of the largest property development companies in Australia.

A Cbus spokesperson said: ‘‘Under the collaborative model, the Cbus board consists of two independent directors, six Master Builders Australia-appointed directors, and six director positions appointed by unions. Cbus directors have a duty to act in the best financial interest of our members.’’

At least Cbus recognises the potential for conflict between the interests of the property division and the board of trustees as shown by the fact that all decisions by Cbus Property must be supported by a majority of independent directors of that company.

Cbus Property has seven directors including three independent directors, which means that two directors have the power to decide what happens if a difficult issue comes to a vote.

Swan would no doubt argue that Noonan’s appointment was not cronyism because he is such a good director. As he said in a press release in 2022: ‘‘Dave takes the obligation for directors to question and provide challenge seriously.’’

I have no ill will towards Media Super and am impressed with its performance over the past decade.

But I believe its members, as well as all superannuation fund members, should seek professional financial advice and find out if they would be better off becoming more actively involved in managing their own money and achieve above-average industry returns.

Of course, that advice supposes that a financial planner recommended by an industry fund representative would be willing to recommend leaving an industry fund to set up an SMSF.