Every year, Super ratings releases the best and worst superfunds. These superfunds are categorised into asset classes, and pre-mixed categories.

The high growth category includes funds with a 91-100% allocation to aggressive assets. It is important to keep in mind that many of these funds are focused on one asset class. For most investors, they would have an allocation to other asset classes. The latest results for the high growth category are below.SUPER BEST PERFORMERS AUGUST 2024
 

Source: Super ratings. Latest data used (at 31 August 2024)    

These are the top holdings for the top 3 superfunds on the list.

1. Perpetual WealthFocus – Perpetual Global Allocation Alpha

Sanofi SAN ★★★ 

Fair Value: EUR 113

Moat: Wide

Sanofi's wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. A wide moat indicates that our analysts believe the company is able to protect and grow their earnings for at least the next 20 years. Growth of existing products and new product launches should help offset upcoming patent losses.

Sanofi's existing product line boasts several top-tier drugs, including immunology drug Dupixent. Dupixent looks well positioned to reach peak sales over EUR 18 billion, with an initial focus on the moderate to severe atopic dermatitis market. We expect additional indications in areas such as the more recently added severe asthma indication and strong clinical data in chronic obstructive pulmonary disease (COPD) will help the drug serve additional patients. 

Patents, economies of scale, and a powerful distribution network support Sanofi’s wide moat. Sanofi’s patent-protected drugs carry strong pricing power, which enables the firm to generate returns on invested capital in excess of its cost of capital. Further, the patents give the company time to develop the next generation of drugs before generic competition arises. Additionally, while Sanofi holds a diversified product portfolio there is some product concentration, with the company’s largest drug in 2022, Dupixent, representing over 20% of total sales, but we expect new products will mitigate the eventual generic competition (likely after 2030).

A history of acquisitions and robust cash flow from operations means Sanofi could take advantage of further growth opportunities through external collaborations. We expect Sanofi's acquisition focus on immunology drugs and rare disease drugs will continue following several deals in this area.

Sanofi is trading within a range that we consider fairly valued. We have a fair value of EUR 113, and it is currently trading at EUR 102.98.

2 & 3 Rest - Shares option and Vision Super – Just Shares

BHP Ltd (ASX: BHP) ★★ 

Fair value: $40.50

Moat: None

BHP is the world’s largest miner by market capitalisation. Main operations span iron ore, copper, and metallurgical coal. Minor contributions are from thermal coal and nickel, while the company is developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Commodity demand is tied to global economic growth, China’s in particular. BHP benefited greatly from the China boom over the past two decades. China is BHP's largest customer, accounting for roughly 60% of sales in fiscal 2023. With demand for many commodities likely to soften as the China boom ends, particularly iron ore which has disproportionately benefited from the boom in infrastructure and real estate investment, we think the outlook is for earnings to materially decline.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remains profitable through the commodity cycle. Much of the company's operations are located close to key Asian markets, particularly the low-cost iron ore business, providing a modest freight cost advantage relative to some producers such as those in Africa and South America.

BHP correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification. Much of its revenue comes from assets in the relative safe haven of Australia. The development of Jansen in Canada is BHP’s major expansion project now that the Spence Growth Option copper project is ramping up, with the company also pursuing modest expansion of its Western Australia Iron Ore operations above 290 million metric tons per year.

The good times during the height of the China boom saw significant capital expenditure, notably on iron ore and onshore U.S. shale gas and oil. Overinvestment in the boom diluted returns to the point where we struggle to justify a moat. As a commodity producer, BHP lacks pricing power and is a price taker.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remains profitable through the commodity cycle.

However, we consider BHP overvalued. It is currently trading at a 14% premium and is overvalued.

Our Investing Compass episode on Commodities explores the concept of price takers, the commodity cycle, and BHP’s competitive environment.

Does the list matter?

When these lists are released, the funds tend to receive investor flows as investors want to receive the stellar returns outlined in the list.

We have heard the phrase ‘past performance is not a reliable indicator of future performance’ ad nauseum – it’s the truth. Every year, when the list of top performing superfunds are released, the top performers see huge inflow. I encourage you to look at the top performer across different time frames – it changes in almost every instance. This is why performance in the traditional sense doesn’t have a weighting in Morningstar’s fund research methodology – meaning – they don’t rank funds based on their past performance.

What is important is relative performance compared to the fund’s benchmark. Super funds will have an investment objective that they are looking to reach, and this is where you can see how they’ve stacked up against this. We can use Australian Super as an example. Looking at the high growth option, the investment objective is to beat CPI + 4.5% over the medium to longer term. It recommends a minimum investment timeframe of 12 years.

When we look at performance – it has achieved that. It has achieved 7.90% p.a. over a 5-year period, and 9.04% p.a. over a 10-year period (AustralianSuper website figures at 18 July 2024). Based on relative performance to its benchmark, AustralianSuper has achieved its objective.

Received a letter from your superfund?

In 2020, the Morrison government brought in legislation that required superfunds to meet an annual objective performance test. The purpose of this was to root out underperforming super funds. Those that underperformed were not able to accept new members and had to inform current members of the underperformance.

If your superfund underperformed, it’s likely that you recently received a letter as they are received by members in late September to early October.

One thing to remember with superannuation is that especially for aggressive funds, the fund managers are basing their allocations on long term horizons. This legislation can punish superfunds for underperforming over the short term and discourages this long-term outlook. There are concerns that it will encourage closet indexing. Closet indexing results from superfund managers who fear diverging too far from the index. We could see the professional managers running the superfund behaving a lot like the index, as they avoid assets like private equity, job-creating infrastructure projects, early-stage technology companies, venture capital and illiquid assets that perform differently.

What should investors do about this? There’s nothing that mandates that you must remove yourself from investments if they underperform. There is nothing that says that a one or even three-year return is the final determinant of your retirement outcome. Switching funds like this can be to the investors’ detriment – we call this impact the behaviour gap.

We conduct a study called ‘Mind the Gap’. We look at the return achieved by a fund and then we look at the return received by an investor – these are markedly different. The fund return is based on the underlying assets in the fund. The investor return is based on the inflows or outflows of actual investors deciding to buy into a fund or sell out of the fund. Those inflows and outflows have no direct impact on the performance of the fund, but the timing of your investments have a huge impact on the return that you get.

In 2013, we looked at 10-year returns and compared the average return of funds and the average returns of investors. We looked at global share funds in the survey and found that the average return over 10 years was 8.77%. Then, we looked at the average return that an investor got. It was 5.76%. The difference of almost 3% is a gap that occurs purely due to poor decisions made by investors.

This is one of many studies that show this impact. It’s important to remember because it can be tempting to switch and chase those returns.

You are able to find the full equity analyst reports through Morningstar Investor.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.