SMSFs underperform APRA funds, is this allocation to blame?

By Lucy Dean

February 13 2018
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SMSFs last year achieved an average return more than 1 per cent lower than MySuper funds, and there’s one allocation trend that could be the culprit.

SMSFs underperform APRA funds, is this allocation to blame?

That’s according to analysis from SMSF support service, SuperGuard.

SuperGuard 360’s latest SMSF performance indices, released on Monday, revealed that while MySuper funds achieved an average 10.5 per cent on the SG360 default index in the year to 31 December 2017, SMSFs achieved 9.2 per cent on the SG360 SMSF reference index.

The SG360 SMSF reference index describes the post-fee investment return an SMSF trustee would receive if they invested passively using asset allocations that align with the Australian Taxation Office’s SMSF asset distribution data.

Similarly, the SG360 default index reflects the post-fee and post-tax investment return an SMSF investor would obtain if they had invested in the typical Australian Prudential Regulation Authority regulated MySuper product invests.

The trend of SMSFs posting slightly lower returns follows a 10-year trend of the SMSF reference index returning 4.8 per cent per annum (p.a.), and MySuper funds returning 5.0 per cent p.a.

The gap has widened slightly in the last five years, with MySuper funds marking returns of 9.6 per cent p.a. compared to SMSFs returning 7.8 per cent p.a.

“As a result, over 10 years the portfolio of the SMSF member would have grown a $100,000 investment into around $160,000 and someone in the average workplace superannuation default investment option would have grown a $100,000 investment into around $163,000,” SuperGuard said.

What’s happening?

SuperGuard put the gap down to SMSFs generally placing less emphasis on growth assets like international equities in the last five years.

The report’s authors explained, “As a result, it is expected that SMSF portfolios will continue to underperform while the equities bull market continues.”

“Smaller SMSFs that traditionally hold lower allocations to equities are likely to under-perform by an even wider margin,” they continued, contending that this allocation trend shows how critical it is that SMSF trustees regularly review their investment strategies, rather than focusing on “only perceived tax advantages”.

SMSFs feature heavier weightings towards Australian equities, cash and property, while MySuper funds have heavier allocations towards both Australian and international equities, fixed interest and ‘other’ investments.

In the 10 years to December 2017, international equities in Australian dollars made average returns of 9.8 per cent p.a., while the S&P ASX 200 made 4.1 per cent p.a.

Australian listed property made 1.9 per cent p.a. and cash made 3.5 per cent p.a.

In the years of, and immediately preceding, the global financial crisis, SMSFs tended to outperform MySuper funds.

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Retirement