Superannuation Funds: Quantitative Study on Australian Market

This report presents a quantitative study on Australian superannuation funds, analyzing a dataset of 168 funds to assess their performance. The study examines various aspects, including fund types, licensee ownership, profit status, investment expense ratios, and regulatory classifications. Key findings reveal that public sector funds exhibited the highest twelve-month returns, while other and financial sectors performed better over three-year periods. Financial sector funds demonstrated superior five-year annualized returns. The analysis also highlights the impact of licensee ownership and profit status on fund performance, with corporate and retail funds showing less volatility compared to public sector and industrial funds. Non-public offer funds outperformed public offered funds in the long run, and non-profit funds had significantly lower expense ratios. The report concludes that a three-year investment period is optimal, but a five-year term is advisable for stable and less volatile returns.

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Superannuation Funds – A Quantitative
Study on Australian Market

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Executive summary
Purpose: The present report analyses a variety of funds for guiding the retired employees to
choose appropriate fund for their superannuation investment (Gallery, Newton, and Palm, 2011).
Design: The researcher collected a secondary data set with 168 superannuation funds to
investigate the returns from the funds. The study examined the nature of the funds, profit status
of the licensee, investment expense ratio, and regulatory classification of the funds.
Findings: Twelve month return was the maximum for public sector funds, whereas three year
returns (2015 – 2017) were better for other and financial sectors. The five year annualized return
was way ahead for financial sector funds compared to other sector funds. Return for one year
was observed to possess the highest risk, whereas three years average returns for all the licensee
ownership were the greatest compared to other two time periods. Corporate and retail funds were
noted to be comparatively less volatile and stable in terms of average return, compared to public
sector and industrial funds. For profit and non -profit licensee, significant difference in returns
was observed for three and five years annualized returns. Again, corporate and industry oriented
funds were significantly better performers in three and five years period. Hence, superior returns
for long term investment were evident. Non-public offer funds were significantly superior
performer compared to public offered funds, in long run. Lastly, expense ratio for non-profit
policies was statistically significant less than that of profit type funds. The researcher reached to
a conclusion that investment for three years was the optimum time period, but, for stable and less
volatility, five years would be a wise choice as the term of investing.
Key words: Superannuation investment, expense ratio, corporate and retail funds

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Table of Contents
Executive summary.....................................................................................................................................2
Table of Tables............................................................................................................................................3
Introduction.................................................................................................................................................5
Business Problem........................................................................................................................................5
Statistical Problem.......................................................................................................................................6
Data Collection........................................................................................................................................6
Design......................................................................................................................................................6
Hypotheses..............................................................................................................................................7
Analysis and Results....................................................................................................................................7
Descriptive Findings.................................................................................................................................7
Inferential Findings................................................................................................................................26
Conclusion.................................................................................................................................................29
Implication.................................................................................................................................................29
References.................................................................................................................................................31
Appendix...................................................................................................................................................32
Table of Tables
Table 1: Twelve Months Returns of 2017 for Five Licensee Ownership Type..............................................8
Table 2: Descriptives for Three Year Return in 2017...................................................................................9
Table 3: Descriptive for the Five Year Return in 2017................................................................................10
Table 4: Market Returns for Financial Licensee Owner Type Funds..........................................................11
Table 5: Market Returns for Employer Licensee Owner Type Funds.........................................................11
Table 6: Market Returns for Public Sector Funds......................................................................................11
Table 7: Market Returns for Nominating Sector Funds.............................................................................11
Table 8: Market Returns for Other Sector Funds.......................................................................................11
Table 9: Return for Corporate Funds.........................................................................................................11
Table 10: Descriptive Statistics for Return for Retail Funds.......................................................................11
Table 11: Descriptive Statistics for Return for Public Sector Funds...........................................................11
Table 12: Descriptive Statistics for Return for Industry Sector Funds........................................................11

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Table 13: Descriptive Statistics for Return for Return on Profit Licensee Status.......................................11
Table 14: Descriptive Statistics for Return for Return on Non-Profit Licensee Status...............................11
Table 15: Two Sample T-test for Returns on Profit and No-Profit Licensee Status....................................11
Table 16: Two Sample T-test for Expense Ratio with Profit and No-Profit Motives...................................11
Table 17: ANOVA for Fund Three Year Return Based on Types.................................................................11
Table 18: ANOVA for Fund Five Year Return Based on Types....................................................................11
Table 19: Two Sample T-test for Returns on Public Offer and No Public Offer..........................................11
Table of Figures
Figure 1: Side-by-Side Box Plot for the Twelve Month Return in 2017........................................................8
Figure 2: Side-by-Side Box Plot for the Three Year Returns.........................................................................9
Figure 3: Side-by-Side Box Plot for the Five Year Returns..........................................................................10
Figure 4: Twelve Month Return for Financial Funds..................................................................................11
Figure 5: There Year Return for Financial Funds........................................................................................11
Figure 6: Five Year Annualized Return for Financial Funds........................................................................11
Figure 7: Side-by-Side Box Plot of Three Returns for Financial Sector Funds............................................11
Figure 8: Side-by-Side Box Plot of Returns for Employer Sector Funds.....................................................11
Figure 9: Average Returns and Standard Deviation for Public Sector Fund.............................................11
Figure 10: Return Comparison for Nominating Funds...............................................................................11
Figure 11: Market Returns for Other Sector Funds....................................................................................11
Figure 12: Side-by-Side Box Plot of Returns for Corporate Sector Funds..................................................11
Figure 13: Side-by-Side Box Plot of Returns for Retail Sector Funds..........................................................11
Figure 14 : Side-by-Side Box Plot of Returns for Public Sector Funds........................................................11
Figure 15: Side-by-Side Box Plot of Returns for Industry Sector Funds.....................................................11
Figure 16: Side-by-Side Box Plot of Returns for Return on Profit Licensee Status.....................................11
Figure 17: Side-by-Side Box Plot of Returns for Return on Non-Profit Licensee Status.............................11

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Introduction
Like many pension funds around the world, the superannuation pension funds in Australia are
designed to meet basic retirement needs, simplifying investment opportunities and promote
economic growth. Since the introduction of the compulsory pension schemes, pension income
has increased substantially in every country, with compulsory pension contributions having an
increasing share of assets under management (Ebbinghaus, 2011). This meticulous system has
also managed to supervise large amounts of savings in the economy, allowing investors to
increase the capital they need.
Business Problem
The performance of the Pension Funds is a matter of national importance, as has been shown by
various government surveys (Nielson, and Harris, 2010). However, the empirical evidence of
pension fund performance remains limited. Although, the scientific literatures on the continuity
of the superannuation funds’ performance in the United Kingdom and in the United States are
present (Juravle, and Lewis, 2009; Gruen, and Soding, 2011). And similar study was conducted
in the Australian Context by Cummings, in 2016. The economic importance and constantly
changing dynamics of retirement require a better understanding of the fund's performance. This
is why it is possible to revise the more recent literatures. The purpose of this article was to
examine the empirical research on the performance of the Australian superannuation funds from
2013 to 2017. The study provides a timely, factual and informative overview of the portfolio
securities and can help researchers assess the effectiveness of recent legislative changes and
recommended changes. In order to understand pension benefits, the costs of pension funds have

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been analyzed, and the regulating policies of APRA have been assessed (Antolín, and Stewart,
2009).
The research focus was primarily on the investigation of yearly, three yearly, and five yearly
returns from the funds (Phalippou, and Gottschalg, 2008). The breakdown of the research was
centered on four important aspects. Firstly, market returns were evaluated for licensee ownership
status of the funds. Secondly, rate of returns were scrutinized for profit motive of the licensee.
Thirdly, impact of regulatory classification of superannuation funds was tested. Finally, and most
importantly, expense ratios of the funds were compared within the two licensee profit status
groups.
Statistical Problem
Data Collection
The present research obtained a secondary data set, consisting of supper funds of 2017. A total of
168 superannuation funds were present in the data set with 13 variables. No primary data was
collected for this study. The data set consisted of six categorical, and seven continuous (ratio)
variables. Amongst the seven continuous variables, market returns for the period of one year,
three years, and five years were considered as the primary dependent variables. The fourth
dependent variable was taken as the operating expense ratio of the funds. Regulatory
classification by APRA (REGULA), type of funds (Type), licensee ownership type
(LICOWNER), and licensee profit status (OBJECTIVE) were the four categorical impact
variables selected for this study.
Design

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The cross-sectional analyses were performed to investigate the impact of the categorical and
independent factors on the three different market returns (Damanpour, Walker, and Avellaneda,
2009). Operating expense ratio for the funds was compared for the two licensee ownership type
of the funds.
Hypotheses
The present article studied the retirement funds, and for the purpose of practically and
statistically significant conclusion, four hypotheses were outlined.
I. Market returns were lower for funds with no profit motives compared to the funs with
profit motives of the licensee.
II. Three time dependent market returns were significantly dependent on the type of fund.
III. Market returns were lower for funds with classification of public offer compared to the
funs with no classification of public offer by the regulatory body, APRA.
IV. Operating expense ratio was significantly lower for the funds with no profit motives
compared to that of the funds with profit motives of the licensee.
Analysis and Results
Descriptive Findings
I. Twelve month return in 2017 was explored for all the licensee ownership funds. It was noted
that the average return for nominating (M = 9.77%, SD = 1.65%) and employer (M = 9.34%,
SD = 1.40%) licensee status were better compared to other status funds. Public sector fund
was the worst fund to invest because of its highly volatile nature (M = 1.69%, SD =

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24.49%). Distribution of the returns was significantly negatively skewed, with leptokurtic
kurtosis.
Table 1: Twelve Months Returns of 2017 for Five Licensee Ownership Type
ONERET FINANCIAL EMPLOYER NOMINATING PUBLIC SECTOR OTHER
Mean 6.33% 9.34% 9.77% 1.69% 8.76%
Standard Error 0.27% 0.35% 0.32% 7.38% 0.73%
Median 6.95% 9.79% 10.05% 8.90% 10.10%
Standard Deviation 2.70% 1.40% 1.65% 24.49% 3.02%
Sample Variance 0.07% 0.02% 0.03% 6.00% 0.09%
Kurtosis 0.1468 -1.0214 -0.3188 10.9539 2.8622
Skewness -0.8257 -0.4361 -0.7121 -3.3070 -1.7004
Range 11.90% 4.50% 5.90% 83.00% 11.60%
Minimum -0.80% 6.90% 6.30% -72.10% 0.20%
Maximum 11.10% 11.40% 12.20% 10.90% 11.80%
Count 98 16 26 11 17
Figure 1: Side-by-Side Box Plot for the Twelve Month Return in 2017
II. Three year annualized returns of 2015 – 2017 were comparatively symmetric among the
funds. The financial sector fund was found to be the most under-performed fund (M =
7.05%, SD = 0.94%). Public sector funds (M = 9.37%, SD = 1.13%), and nominating funds
(M = 9.35%, SD = 1.09%) were the top performers. But, public sector fund was observed to

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possess high positive skewness for three year return. However, employer licensee fund was
the less volatile funds with a standard deviation of 0.94%.
Table 2: Descriptive Statics for Three Year Return in 2017
THERET FINANCIAL EMPLOYER NOMINATING PUBLIC SECTOR OTHER
Mean 7.05% 9.12% 9.35% 9.37% 8.47%
Standard Error 0.25% 0.23% 0.21% 0.34% 0.56%
Median 7.58% 9.49% 9.37% 9.58% 9.50%
Standard Deviation 2.49% 0.94% 1.09% 1.13% 2.29%
Sample Variance 0.06% 0.01% 0.01% 0.01% 0.05%
Kurtosis 1.8183 -1.3263 1.6275 2.5690 6.8010
Skewness -1.0847 -0.3246 -0.9187 -0.8027 -2.3929
Range 15.31% 2.85% 4.88% 4.55% 9.33%
Minimum -2.07% 7.60% 6.16% 6.80% 1.03%
Maximum 13.24% 10.45% 11.04% 11.35% 10.36%
Count 98 16 26 11 17
Figure 2: Side-by-Side Box Plot for the Three Year Returns
III. Average of five year annualized return of 2013 – 2017 was calculated. Unexpectedly, public
sector fund was the leading return providers (M = 4.53%, SD = 0.75%), and nominating
licensee fund was the second best with 4.27% average return (SD = 0.74%) and least market

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risk. Financial funds did not performed well in five year term, and the distribution of the
returns was significantly negatively skewed with leptokurtic kurtosis.
Table 3: Descriptive for the Five Year Return in 2017
FIVERET FINANCIAL EMPLOYER NOMINATING PUBLIC SECTOR OTHER
Mean 3.00% 4.11% 4.27% 4.53% 4.04%
Standard Error 0.14% 0.22% 0.15% 0.22% 0.18%
Median 3.07% 4.26% 4.29% 4.61% 4.14%
Standard Deviation 1.40% 0.86% 0.74% 0.75% 0.74%
Sample Variance 0.02% 0.01% 0.01% 0.01% 0.01%
Kurtosis 15.868 -0.747 1.673 0.490 1.649
Skewness -2.474 -0.432 -0.883 -0.337 -0.919
Range 12.74% 3.03% 3.34% 2.73% 3.04%
Minimum -5.70% 2.37% 2.12% 3.10% 2.12%
Maximum 7.03% 5.39% 5.46% 5.83% 5.16%
Count 98 16 26 11 17
Figure 3: Side-by-Side Box Plot for the Five Year Returns
IV. Financial funds, due to their varied average returns for three different time periods, were
studied separately. This particular fund returned an average three year return of 7.05% (SD =

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2.49%) with slightly negatively skewness (S = -1.085), but five year average return was on
the lower side (M = 3.0%, SD = 1.4%), but the risk associated was also low. Hence, a stable
but low return was expected from the curve. Most of the financial funds were observed to
provide return within a short interval (Figure 6), and the distribution was significantly
negatively skewed with leptokurtic kurtosis. The comparative analysis was prominent from
Figure 7 side-by-side box plot. The high negative skewness was also observed from the box
plot of five year average return. Long term investment was not advisable for this fund.
Table 4: Market Returns for Financial Licensee Owner Type Funds
Descriptives ONERET THERET FIVERET
Mean 6.33% 7.05% 3.00%
Standard Error 0.27% 0.25% 0.14%
Median 6.95% 7.58% 3.07%
Standard Deviation 2.70% 2.49% 1.40%
Sample Variance 0.07% 0.06% 0.02%
Kurtosis 0.147 1.818 15.868
Skewness -0.826 -1.085 -2.474
Range 11.90% 15.31% 12.74%
Minimum -0.80% -2.07% -5.70%
Maximum 11.10% 13.24% 7.03%
Count 98 98 98

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Figure 4: Twelve Month Return for Financial Funds
Figure 5: There Year Return for Financial Funds