Be wary of league tables

This time every year mainstream media often report on the league tables for investments and superannuation accounts. The reports mostly talk about “the best fund”. Was your fund one of the best? Or have lost money through missed opportunity?

They are unreliable

If your fund doesn’t feature among “the best” don’t despair (yet). I think that these tables are unreliable as a basis for an investment decision.

The tables generally judge the best based on investment performance over the past 12 months. This time frame is way too short to be the basis of an investment decision.

Most of the tables in the newspapers judge performance for multi-sector managed funds that invest across several asset classes. They do this because most people are invested in multi-sector funds. But just because most people are in these funds doesn’t mean they are the best way to get top class performance. If you really want “the best” you need to broaden your scope.

The best superannuation account is often reported based on the performance of its balanced fund. Again the reason is that around 80 percent of Australians are invested in balanced funds. I have two concerns with this judgement:

  • There is no clear definition of what constitutes a “balanced” asset allocation so the funds being compared can be quite different. Hardly a like-for-like basis for annointing “the best”.
  • As above, just because most people are in balanced funds doesn’t mean it is correct to associate the entire super account with the performance of its balanced fund.

Unreliable but useful

Whilst I believe the reported tables are unreliable as a basis for an investment decision the fact they are published in mainstream media is actually quite useful.

The appearance of the reports each year serve as a wonderful reminder to make an annual critical review of the performance of our portfolios and accounts. Particularly if you have changed employers during the past 12 months it is a great idea to review your superannuation accounts.

Click here to learn how to conduct a critical review of your account.