A recent Australian study of 3,390 super funds (AUM of $570 billion) by Stockspot looked at the relationship between the fund fees and performance. The study divides the fund universe into 2 categories - “fat cats” and “fit cats”. Fat cats consistently underperform over a 1, 3 and 5-year time horizon, while fit cats consistently outperform. As well as underperforming, fat cats have noticeably higher fees – see the graphic below:
So what does this mean for investors? Australian super funds with higher fees seem to have materially lower returns. The difference could simply be just the fees, or fees plus the culture (size) of the manager or the type of investment strategy adopted. Whatever the reason, the Australian super fund universe is telling us that fees matter for investors - lower fees will generally have better outcomes.
John Berry and Karl Geal-Otter