SMSFs yield competitive returns

SMSF performance APRA

SMSF performance against APRA funds has been skewed by reporting methods and funds with balances above $200,000 perform as well as their non-SMSF counterparts.

SMSFs that had assets above $200,000 and were not concentrated in cash and term deposits had performance on par with Australian Prudential Regulation Authority (APRA)-regulated funds, according to new research commissioned by the SMSF Association.

The research, conducted by the University of Adelaide’s International Centre for Financial Services, found the methodology used to measure SMSF performance skewed results downwards when compared to that used to assess the performance of APRA-regulated funds.

The report based off the research, titled “Understanding self-managed super fund performance”, noted SMSFs use a return on assets (ROA) measure compared to the rate of return (ROR) for APRA-regulated funds, and the ROA measure is net of contributions tax and insurance flows compared to the ROR measure, which is gross of contributions tax and insurance flows.

When this difference in methodology was accounted for, SMSFs with balances above $200,000 performed at comparatively the same level as APRA-regulated funds for the three years of data examined, 2017-2019, as part of the research, according to Adelaide University Business School finance lecturer George Mihaylov.

The report noted that using a median ROR for both APRA-regulated funds and SMSFs for the three years covered by the research, SMSFs returned 6.9 per cent, 6.0 per cent and 6.2 per cent – around 2 per cent higher than the median ROA return figures, compared to 7.8 per cent, 7.6 per cent and 6.2 per cent for APRA funds.

The return figures for SMSFs with more than $200,000 and less than 80 per cent cash or term deposits increased to 8.0 per cent, 6.6 per cent and 6.5 per cent for the 2017-2019 period, and were higher than the APRA return figures in 2017 and 2019.

Mihaylov pointed out these findings were based on the use of anonymised data provided by BGL Corporate Solutions and Class from over 318,000 SMSFs between 1 July 2016 and 30 June 2019, and that significant sample set was used to identify the $200,000 mark as the point where SMSFs could generate comparable returns with APRA-regulated funds.

Speaking at a presentation of the report, SMSF Association chief executive John Maroney said the research was important as it was the first time an accurate comparison could be made between SMSFs and APRA-regulated funds using a consistent basis.

“These findings act as a mythbuster and myth disrupter and show that SMSFs can be competitive across a much greater breadth of asset values than the official guidance indicates,” Maroney said.

“We believe this is very important and reinforces that SMSFs are a viable option for a large proportion of the population – not just the super wealthy – where median account balances are well under the million-dollar mark, and a lot of those do start at around the $200,000 mark and build up over time.”

The industry body also noted this latest research reflected the findings of actuarial firm Rice Warner, which, in late 2020, examined the costs of running an SMSF and found those with balances of $200,000 or more were cost-effective compared with industry and retail superannuation funds.

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