SMSF sector posts strong returns

SMSF returns

The total SMSF sector posted strong returns on assets in the 2021 financial year, but the size of a fund still plays a significant role in the individual performance of each fund.

The total SMSF sector posted returns of more than 18 per cent for the 2021 financial year, shrugging off the low performance of the previous year, with the latest ATO figures confirming performance improves for funds above $200,000.

The investment performance figures are part of the ATO SMSF statistical overview for 2020/21, which tracks the return on assets (ROA) of the SMSF sector, calculated by determining net earnings and comparing this to assets at the beginning of the financial year to determine the percentage return on assets.

The overview, released yesterday, shows that over the five years to 2020/21 the total ROA for the SMSF sector, based on annual return data, was positive each year.

In the 2021 financial year, total ROA was 18.2 per cent, compared to 1 per cent in 2019/20, which was a low point over the five years. Conversely, the total ROA was 7.3 per cent in 2018/19, 8 per cent in 2017/18 and 11.2 per cent in 2016/17.

The ATO noted these figures, which are an indicator of performance across the entire sector, could not be directly compared to Australian Prudential Regulation Authority-regulated funds as the data inputs and methodology used are different, with the latter’s performance based on a rate of return (ROR) calculation.

However, it found the ROA figures continued to show a direct relationship to the size of an SMSF and those with larger asset holdings had higher ROAs.

Funds below $50,000 had an ROA of 1.8 per cent, which increased to 8 per cent for funds with a balance between $50,000 and $100,000. Similarly, increases were seen for funds between $100,000 and $200,000, with a 10.4 per cent ROA, $200,000 and $500,000, 15.2 per cent ROA, and $500,000 and $1 million, 17.5 per cent ROA.

This is consistent with research released by the SMSF Association in early 2022 that found when using the ROA method, rather than the ROR method, SMSFs with balances above $200,000 performed on par with APRA-regulated funds.

The overview also found while the total ROA across the SMSF sector was high, 15.2 per cent of funds recorded a zero or negative ROA in 2020/21, dropping from 60.0 per cent in 2019/20, 13.3 per cent of funds had an ROA between zero and 5 per cent, down from 23.2 per cent in 2019/20, and 71.5 per cent of SMSFs had an ROA above 5 per cent in 2020/21, an increase from 16.8 per cent in 2019/20.

The regulator stated the statistical overview was drawn from the 2020/21 SMSF annual returns that have been lodged, which also showed there had been continued growth in the number of SMSFs, fund members and the underlying assets in each fund.

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