Investment performance in the self-managed superannuation sector
In partnership with regulators and industry groups, researchers from Adelaide Business School have undertaken a series of projects looking at the performance of the self-managed superannuation fund (SMSF) sector.
The projects, commissioned separately by the SMSF Association and the Australian Taxation Office, were led by Professor Ralf Zurbrugg and Professor Alfred Yawson, respectively. The research stream focuses on investment performance, including the efficacy of various performance measures, how performance is reported to the market, and some of the key fund characteristics that impact performance, such as fund size and asset allocation.
Accurate and comparable superannuation performance statistics are essential for individual investors when making decisions about their choice of superannuation vehicle. The researchers were engaged to identify the most effective way to measure SMSF performance, with their work receiving widespread media attention and interest from various industry stakeholders.
One of the key projects in the research stream involved an independent review of the financial metrics used by industry regulators to report SMSF investment performance. The researchers collected anonymised financial data on over 300,000 individual SMSFs, standardising the way that their performance is measured relative to retail and industry superannuation funds, to examine how that performance varies with differences in fund size and asset allocation.
“Our research has basically standardised the way that we report these performance metrics to market, and we’ve been able to show that [SMSFs] are, in fact, doing significantly better than what we previously thought.” – Dr George Mihaylov
The research yielded several interesting results, demonstrating the value of effectively benchmarking performance via rates of return, and showing that SMSFs do not necessarily need to be as large as previously thought in order for them to be financially viable.
The research resulted in two key impacts:
How performance is reported for the SMSF sector. The most effective method for reporting on SMSF performance is to use rates of return as they allow for comparison with other types of superannuation funds. Regulators have subsequently refined their methodology where possible, and industry groups have taken the initiative in playing a complementary role, making rate-of-return-based performance metrics available to the marketplace.
Minimum size for SMSFs. Previous thinking on the minimum amount required to open an SMSF was that it is inadvisable for clients with less than $500,000 in superannuation assets. Providing new thought leadership on the question, the research team were able to show evidence that funds may become financially viable with balances as low as $200,000.