Why Super Fund Returns Differ

Two super funds can carry the same “balanced” label, hold the same member’s money over the same period, and still deliver meaningfully different returns. Over a single year, the gap between top and bottom performers within the same risk category routinely exceeds two to three percentage points. Over a decade, even modest-looking annual differences of around one percentage point compound into tens of thousands of dollars in divergent retirement outcomes.

These differences are not random noise. They are structural, persistent, and driven by a set of identifiable factors that interact in complex ways.

For members comparing super funds, this can be genuinely confusing. League tables shift from year to year, labels obscure real differences, and short-term snapshots reward strategies that may not hold up through a full market cycle. Understanding why returns differ is more valuable than knowing which fund topped last year’s table. This article explains the core drivers of return divergence across Australian super funds, drawing on publicly available data from APRA, Treasury, the Productivity Commission, and academic research.

General information only. Not financial advice.

Asset allocation is the single largest driver of return differences

The most important investment decision any super fund makes is its strategic asset allocation: the long-term split between growth assets (shares, private equity, infrastructure) and defensive assets (bonds, cash). This decision alone explains the majority of return variation across funds over time.

The challenge for members is that funds using the same label can operate with very different underlying allocations. There is no legally binding or industry-standard definition of “balanced” in Australian superannuation. A review of investment options classified as “balanced” found growth asset allocations ranging from roughly 49% to 80%, a spread wide enough to produce materially different risk and return profiles. A fund with 75% growth assets will, over a full market cycle, behave quite differently from one with 55% growth assets, even if both call themselves “balanced.”

Compounding the confusion, the two major research houses in Australian superannuation use different classification systems for the same risk categories. Most large industry funds’ default options fall into overlapping definitions simultaneously. Members comparing returns across different data sources may inadvertently be comparing funds from different risk categories without realising it.

Within equities, the split between Australian and international shares, the degree of currency hedging, and exposure to sectors like emerging markets or small-cap stocks all vary across funds. In FY2025, unhedged international shares returned roughly 18.6% while hedged international shares returned around 13.7%. That gap was driven entirely by the Australian dollar’s depreciation, not stock selection. Funds with higher unhedged international exposure appeared to outperform, but they were simply carrying different currency risk.

Similarly, the classification of assets as “growth” or “defensive” is itself inconsistent. Some funds classify unlisted property and infrastructure as 50% growth and 50% defensive; others treat them entirely as growth assets, making like-for-like comparison harder still.

Investment strategy and implementation shape what funds actually deliver

Even funds with identical asset allocations can deliver different returns depending on how they implement their investment strategy. The three key implementation choices are whether to manage investments actively or passively, whether to use internal or external managers, and how to allocate the fund’s “risk budget” across the portfolio.

Active management, where portfolio managers select individual securities or time market exposures, is the dominant approach among large Australian super funds. However, the evidence on its effectiveness is mixed. The S&P Dow Jones SPIVA Australia Scorecard found that 81.7% of Australian equity general funds underperformed the S&P/ASX 200 over five years. Vanguard research reached a similar conclusion, finding three in four Australian super funds would have performed better by simply replicating relevant indices. The only asset class where a majority of active managers outperformed was bonds, and only over shorter timeframes.

Despite this, most large funds have not abandoned active management. Instead, they increasingly employ a hybrid approach through risk budgeting: deploying passive strategies in well-covered, efficient markets (such as large-cap developed-market equities) while concentrating active risk in less efficient markets where the dispersion between best and worst managers is widest, including small-cap equities, emerging markets, and private assets.

One of the most significant structural shifts in Australian super has been the trend toward internalising investment management. Some of the largest funds now manage over half their assets internally, with some targeting 70–75% in coming years. The rationale is straightforward: avoiding external management fees flows directly to net returns. One major fund estimates internalisation has saved members roughly $200 million annually. At the opposite end, some large funds maintain 100% external management, believing the risks of building internal teams outweigh the fee savings for their structure. Most funds operate somewhere in between, managing 12% to 35% of assets directly.

The net return impact depends on whether internal teams can match or exceed the performance of the external managers they replace, a question for which the evidence is still accumulating.

Exposure to unlisted assets creates both opportunity and complexity

Australian super funds collectively hold an estimated $500 billion to $650 billion in unlisted or private assets, including direct property, infrastructure (airports, toll roads, energy assets), private equity, and private credit. The range of allocations across funds is wide: some hold roughly 12% in illiquid assets, while others allocate up to 40%.

These assets can deliver an illiquidity premium, meaning higher returns over time as compensation for reduced liquidity. Over the past decade, funds’ growth options have lifted unlisted infrastructure exposure by around 5 percentage points to approximately 9% of total allocation. Large funds with young member demographics (where contributions exceed outflows) can afford higher illiquid exposure because they face less pressure to sell assets quickly.

However, unlisted assets introduce a valuation complexity that has significant implications for reported performance. Unlike listed equities, which are priced continuously by markets, unlisted assets are revalued periodically (typically quarterly, sometimes less frequently) using discounted cash flow models that involve subjective assumptions. This creates a smoothing effect: during sharp market downturns, unlisted valuations lag reality, and funds with higher unlisted exposure appear to perform better than they otherwise would. The reverse occurs during recoveries.

The COVID-19 early release scheme crystallised the fairness dimension of this issue. When 4.9 million members withdrew $37.3 billion from their super while listed markets had crashed but unlisted valuations had not adjusted, members who withdrew effectively received payouts calculated at stale prices. APRA found that some funds’ valuation governance was inadequate. In one notable case, APRA determined that a fund’s handling of unlisted asset valuations during this period was unfair to certain members, resulting in required compensation.

APRA’s revised Prudential Standard SPS 530, effective from January 2023, now requires more robust valuation governance. However, a December 2024 thematic review found that 12 of 23 major licensees still required material improvement in their valuation practices.

Fees determine how much of a fund’s gross return members actually keep

A fund’s investment return matters only after fees and costs are deducted. The gap between gross and net performance, and the compounding impact of that gap over decades, is one of the most consequential yet underappreciated drivers of retirement outcomes.

Australian super fees come in several layers: administration fees (covering account maintenance, compliance, technology), investment fees (covering portfolio management, brokerage, custody), indirect cost ratios embedded in underlying investment vehicles, buy-sell spreads on transactions, and in some cases performance fees. Total fees across the industry average approximately 1.1% of assets, though the range is wide, from around 0.2% for low-cost indexed options to well over 1.5% for some legacy retail products.

The compounding effect of fee differences over a working life is substantial and well-documented. The Productivity Commission found that an increase in fees of just 0.5% can cost a typical full-time worker about 12% of their balance, equivalent to approximately $100,000, by retirement. ASIC’s MoneySmart calculator illustrates this with a worked example: a 30-year-old earning $50,000 with $20,000 in super who moves from a fund charging 2.5% to one charging 1% could have $81,000 more at age 65.

It is worth noting, however, that there is no straightforward correlation between low fees and high net returns at the fund level. Research comparing higher-fee and lower-fee funds has found that the median ten-year return difference is marginal. This is not an argument for ignoring fees. Rather, it is a reminder that net-of-fees performance, which captures both the cost and the value added by a fund’s strategy, is the relevant comparison metric. A fund charging higher fees may justify them through superior gross returns, unlisted asset access, or other sources of value. Equally, a fund charging lower fees but delivering mediocre gross returns may not serve members well either.

Fee compression has been a clear trend. Consolidation (the number of APRA-regulated funds has halved from over 1,500 two decades ago to approximately 111 by mid-2024), the introduction of MySuper, APRA’s performance test, and competitive pressure have all driven fees downward. Eight “mega funds” now exceed $100 billion in assets, and their scale delivers lower per-member costs, greater bargaining power with external managers, and the ability to internalise management.

Risk management approaches diverge most visibly during market stress

Super funds do not all manage risk the same way, and these differences become most apparent during periods of market dislocation.

In each episode, funds with different risk management approaches produced meaningfully different outcomes. Funds maintaining shorter-duration bond exposure avoided the worst of 2022’s bond losses when yields rose sharply. Funds with larger unlisted asset allocations reported smoother returns during all three episodes, though as discussed, this partly reflects valuation lag rather than genuine defensive positioning. Some funds operate dedicated tail-risk protection programs using derivatives, explicitly designed to limit drawdowns near retirement when members are most vulnerable. Others rely on dynamic asset allocation, adjusting portfolio weights in response to changing market conditions.

Currency hedging is another significant source of performance dispersion that is often invisible to members. Australian super funds hold roughly half their assets offshore but hedge only about one-fifth of international equity exposure. The relatively low hedge ratio reflects the Australian dollar’s tendency to depreciate during global equity selloffs, providing a natural buffer for unhedged positions. During COVID, the dollar’s depreciation benefited unhedged international holdings but triggered over $17 billion in margin calls for hedged positions, creating acute liquidity pressure for some funds. Over long periods, the impact of hedging tends to net out, but over shorter horizons, differences in hedge ratios can drive return divergence of several percentage points.

The core trade-off in risk management is between downside protection and upside capture. A fund that holds more cash, hedges more aggressively, or uses derivatives to limit losses will typically suffer smaller drawdowns in crises but will also participate less fully in recoveries and bull markets. Over the 33 years since compulsory super began, growth funds have delivered positive returns in 28 of those years, suggesting that for members with long time horizons, maintaining growth exposure through downturns has historically been rewarded.

Member behaviour creates a gap between reported fund returns and individual outcomes

A fund’s reported return reflects the performance of its investment option over a period, calculated on a time-weighted basis that strips out the effect of cash flows. But individual members experience money-weighted returns, outcomes shaped by the timing and size of their contributions, withdrawals, and any switching between investment options. These two figures can diverge significantly.

The most damaging behavioural pattern is switching to defensive options during market downturns and switching back after markets have recovered. Academic research studying switching behaviour around the COVID pandemic found that switching activity had a negative impact on the balances of members who switched, consistent with return-chasing behaviour and poor market timing. APRA observed that while some members may have timed the market well, many more were likely to have switched at the wrong time. Industry estimates suggest that a member with $100,000 who switched from a balanced option to cash at the start of the pandemic would have been $35,000 to $45,000 worse off by FY2022 than someone who stayed invested.

At the fund level, member switching creates a secondary effect: cash drag. During COVID, fund cash holdings surged by over $50 billion (from around 10% to 14% of total investments) as trustees and members sought liquidity. This elevated cash allocation diluted returns during the subsequent recovery, affecting all members, not just those who switched.

Lifecycle products, which now account for approximately 44% of MySuper default options, address one dimension of member risk by automatically shifting asset allocation from growth to defensive as members age. However, their design involves trade-offs. Analysis of ten-year returns found that while younger cohorts in lifecycle products outpaced growth benchmarks (benefiting from aggressive allocations while young), older cohorts suffered from premature de-risking. The 1940s birth cohort in lifecycle products achieved a median return of just 4.7% per annum over ten years, compared with 7.1% for single-strategy growth products, a gap reflecting the opportunity cost of reducing growth exposure too early. More recent lifecycle designs have adjusted their glide paths, but the permanent impact on earlier cohorts illustrates how product design decisions by trustees flow through to member outcomes.

Contribution timing also matters. Because superannuation contributions flow in gradually over a career, and typically increase as salaries grow, more dollars are exposed to later-period returns when balances are larger. A significant market downturn near retirement affects the money-weighted return far more than the same downturn early in a career, even if the fund’s time-weighted return is identical in both scenarios.

Short-term return comparisons can actively mislead

One-year and three-year performance tables attract significant attention, but they are among the least reliable guides to a fund’s quality. Short-term returns primarily reflect whichever asset classes, investment styles, or market conditions happened to prevail during the measurement period, not the structural characteristics that drive long-term outcomes.

The evidence on performance persistence is striking. The S&P Dow Jones Australia Persistence Scorecard found that of 218 funds across five categories that ranked in the top quartile for the 12 months to December 2020, only one maintained its top-quartile position over the following four consecutive years. Even relaxing the test to the top half, the percentage of funds remaining there over five years was lower than what pure chance would predict. Academic research on Australian super funds specifically has concluded that past performance does not appear to be a reliable indicator of future performance.

Short-term snapshots are also sensitive to market regime. In FY2025, funds with higher commodity exposure or unhedged international allocations outperformed; in prior years, technology-heavy portfolios dominated. A fund may appear to underperform its peers for three consecutive years not because of structural weakness but because its investment style is temporarily out of favour. Some of Australia’s strongest long-term performers over 10, 15, and 20 years did not appear in the one-year top ten in FY2025 for precisely this reason.

Survivorship bias further distorts performance tables. Funds that merge, close, or are absorbed disappear from the data, creating an upward bias in reported industry averages. Between 2019 and mid-2024, the number of APRA-regulated funds fell from 190 to 111, a substantial number of disappearing data points. The funds that exit are disproportionately weaker performers, flattering the track records of the survivors.

For these reasons, assessing performance over a full market cycle (typically seven to ten years) provides a more reliable picture. APRA’s performance test uses a rolling multi-year assessment window rather than single-year snapshots. Peer-group comparisons that control for risk category, grouping funds by their actual growth-asset allocation rather than their marketing label, are more meaningful than raw return rankings. And benchmark-relative performance (how a fund performed against what it should have delivered given the risks it took) is more informative than absolute returns in isolation.

Governance, regulation, and execution quality compound over decades

Behind every investment return is a chain of decisions made by the fund’s trustee board: which asset allocation to adopt, which managers to appoint, when to adjust strategy, whether to build internal capabilities, and whether to pursue mergers for scale. Governance quality, the skill, independence, and effectiveness of these decision-makers, is difficult to observe directly but profoundly affects long-term outcomes.

APRA’s prudential standards (SPS 510 on governance, SPS 530 on investment governance) set minimum requirements for board structure, skills, and oversight. However, a March 2025 APRA discussion paper found that in more than 50% of industry super funds sampled, the full board did not have overriding discretion to refuse a nominee director even when the appointment would not address identified skill gaps.

Strategic decisions by trustees have driven some of the largest long-term performance differences across funds. Funds that moved early into unlisted infrastructure, built internal investment teams, or pursued mergers for scale have tended to outperform over long periods. Super Consumers Australia calculated that fund mergers undertaken between 2018 and 2020 delivered an average fee reduction of 13.4%, amounting to nearly $15,000 in additional retirement savings per member over a working life.

APRA’s annual performance test, introduced in 2021 under the Your Future, Your Super reforms, has become the most consequential accountability mechanism. Each MySuper product is assessed against a tailored benchmark constructed from passive indices weighted by the product’s own strategic asset allocation. Products underperforming their benchmark by more than 0.50% per annum over the rolling assessment period fail the test. First-time failures must notify members; second consecutive failures result in closure to new members. In the inaugural 2021 test, 13 of 76 MySuper products failed, covering roughly one million members and $56 billion. By 2025, all 52 MySuper products passed, with failures confined to seven platform trustee-directed products.

The test has drawn criticism for potentially encouraging benchmark-hugging, where funds manage closely to passive benchmarks to avoid failure rather than pursuing differentiated strategies that might deliver higher returns over time. The government announced a review of the test in August 2025, particularly regarding its potential to discourage investment in areas such as housing and long-dated infrastructure. Nonetheless, the test has accelerated fund consolidation and demonstrably improved outcomes for members previously in chronically underperforming products.

Why “similar” funds can still perform very differently

No single factor explains why super fund returns diverge. The explanation lies in the interaction and compounding of multiple small structural differences over very long time horizons.

Consider two funds that both call themselves “balanced.” One holds 75% growth assets with 27% in unlisted investments, manages 60% of assets internally, charges 0.8% in total fees, and maintains a low currency hedge ratio. The other holds 60% growth assets with 12% in unlisted investments, outsources all management, charges 1.3% in total fees, and hedges half its international exposure. In any given year, these differences might produce a return gap of one to two percentage points. Over a full market cycle, the gap may narrow, but it will not disappear entirely, because the structural differences are persistent.

The compounding arithmetic is relentless. The Productivity Commission’s finding that a 0.5% annual fee difference can cost approximately $100,000 over a working life captures only the fee dimension. When fee differences combine with asset allocation differences and implementation skill, the cumulative effect is larger. Illustrative modelling suggests that a fund delivering 1.3% more in net annual returns (plausibly split across 0.5% lower fees, 0.5% better asset allocation outcomes, and 0.3% better manager selection) would produce roughly $360,000 more on a $50,000 starting balance with $10,000 annual contributions over 30 years at a 7% base return.

Superannuation is uniquely sensitive to these effects because of its extraordinarily long time horizon (potentially 40+ years in accumulation and another 20–30 in retirement), compulsory ongoing contributions that themselves begin compounding immediately, the concessional tax environment that amplifies compounding, and preservation rules that ensure the process is uninterrupted. Small advantages, or disadvantages, in any of the drivers discussed in this article do not cancel out over time. They accumulate.

Key takeaways for comparing super funds

Understanding why returns differ is the foundation for making more informed comparisons. The following points are offered as general context, not as recommendations for any particular course of action.

Labels are unreliable shorthand. Two “balanced” options can differ by more than 20 percentage points in growth-asset allocation. Comparing funds within the same risk category (based on actual asset allocation, not marketing labels) produces more meaningful insights than comparing across labels.

Net-of-fees performance over long periods is the most informative metric. One-year or even three-year return figures are poor predictors of future outcomes. Full-cycle performance (seven to ten years or longer) that accounts for fees, taxes, and risk taken provides a more reliable basis for assessment.

Small annual differences compound dramatically. A seemingly modest 0.5% annual difference in net returns can translate into six figures over a working life. Fees, asset allocation, and implementation skill all contribute to this gap independently and cumulatively.

Reported fund returns may not match your experience. Contribution timing, switching behaviour, and lifecycle product design all create gaps between published fund-level returns and individual member outcomes. The fund’s return is a starting point, not the full picture.

Governance and structural factors matter but are harder to observe. Trustee quality, scale, internal capability, and regulatory compliance shape the long-term trajectory of a fund’s performance in ways that may not be visible in short-term data.

APRA’s performance test results and the ATO’s YourSuper comparison tool provide publicly accessible starting points for comparing fund performance. For decisions involving specific personal circumstances, professional financial advice tailored to individual needs remains the appropriate step.