Rather than name a ‘fund of the year’, super consultancy Chant West has produced lists of the top funds for a series of different market segments, saying that the right fund for any individual or organisation is the one that is strong in the areas that are important to them.

The individual retail market, for example, would be wise to take advantage of the cheaper not-for-profit funds. The medium-sized corporates, on the other hand, with the bargaining power to negotiate fees, would probably be better served by the wider investment choices and services of a master trust, the report said. The Chant West ‘Apple’ rating took into account six main criteria: organisational strengths, investments, fees, insurance, administration, and member services.

These were weighted according to their relative importance; with investments carrying the most influence at 40 per cent. Most of the investment criteria (70 per cent), depended on the funds’ governance regime, its asset consultant, in-house resources, and how its portfolios were constructed. “These factors were weighted heavily because they feed directly into the future performance of a fund, which is what we are most interested in,” Ian Fryer, research manager at Chant West, said.

“The league tables published by other ratings agencies in the newspapers every month tend to put the focus on past performance, and are too short term.” Past performance accounted for 10 per cent of the ‘investment’ criteria in Chant West’s ratings. “Past performance is relevant, but it only counts for a small portion of our assessment,” principal at Chant West, Warren Chant, said. “We can’t ignore the strong performance history of not-for-profit funds which, as a group, have outperformed master trusts over most periods in the last seven years.”

However, Chant acknowledged that the outperformance of the industry funds was due mainly to their greater exposure to unlisted assets, particularly direct property, infrastructure, private equity, and hedge funds. Industry funds had a strategic allocation to these assets of 25 per cent, while master trusts had only about 7 per cent. “It is true that many of the alternatives are yet to be revalued, but that is not the whole story,” Fryer said.

“These unlisted assets really have outperformed, and they have provided diversification as well.” Fryer conceded that it has been easier for industry funds to build up holdings in alternatives, as the members tend to be less engaged and unlikely to switch out of a fund, even since the introduction of choice. “Obviously with retail funds, members chose to enter those funds, and they can just as easily choose to leave,” Fryer said. Many retail funds experienced runs on their funds in the early 1990s with investments in listed property trusts, and so they are much more cognisant of keeping liquidity high, even at the expense of better returns, he said.