Performance may be life-cycle driven

smsf performance

A deeper examination of SMSF underperformance may reveal it is caused in some cases by the life cycle of fund members rather than poor investments.

Further research should be conducted into the performance of SMSFs relative to Australian Prudential Regulation Authority (APRA)-regulated funds to examine whether the life cycle of an SMSF and its underlying holdings are major factors in shaping poor returns, according to an academic.

University of Adelaide International Centre for Financial Services Professor Ralf Zurbruegg said following the release of research into the running costs of SMSFs and their performance relative to APRA-regulated funds, there should be a more granular focus on why some SMSFs underperform.

“I would separate them into two different plots: the first are funds that are underperforming just for one particular year or two particular years and those which are consistently underperforming,” Zurbruegg said at a recent SMSF Association presentation into the performance of SMSFs.

“The reason I’m highlighting this is because there’s a measure of the life-cycle effect of trustees managing their money from when they start their SMSF to when they are in the middle and to the end which leads to a difference in the construction of their portfolios.”

He said high levels of cash made sense for SMSF members looking to exit their fund, but not for those starting their working lives and looking for a long-term investment strategy to create returns across their working life.

“A greater analysis of those funds that are consistently underperforming needs to be focused on when we look at them and that will be pertinent to determine what is that ratio of funds that are intermittently underperforming to those which do so consistently,” he said.

He said such research would answer critics of the SMSF sector and provide further comparisons to how SMSFs performed in comparison to APRA-regulated funds.

“It is very easy for someone outside the SMSF sector to say there are thousands of funds which are underperforming, but if we can show that some are underperforming in specific years, there might be a reason for that which is not being captured because they have particular goals, compared to those which are consistently underperforming, which is an issue that APRA is also interested in,” he said.

“If we can delve down into that detail and work out what is the actual ratio of real underperformance in these funds, it will be quite revealing.

“We might find maybe there is a large proportion or potentially there actually might not be and we’re simply picking up this life-cycle effect.”

Zurbruegg, in conjunction with George Mihaylov, were the authors of a recent report commissioned by the SMSF Association that found SMSFs with balances above $200,000 had performance on par with APRA-regulated funds.

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