Andrew Main - The Australian | 17 June 2014
AUSTRALIAN self-managed super funds have significantly outperformed their APRA-regulated rivals in six out of the past eight years surveyed, according to a landmark report from National Australia Bank.
The study found that on average SMSFs had beaten the average APRA-regulated fund by 22.5 per cent over the period, after paying all costs.
"There's a consistency here," said David Gall, executive general manager of banking and wealth solutions at NAB."
"This is not a one-hit wonder."
He added that NAB had been assembling the information from Australian Taxation Office and APRA statistics in a study that began in 2004.
The numbers indicate that a $500,000 investment in an SMSF at the start of the 2004-05 financial year would have returned $345,571 net by June 30, 2012, an increase of 69.11 per cent, compared with the average APRA-regulated fund returning $190,100 net, a lift of 38.02 per cent.
Mr Gall said he was agnostic about the relative merits of the different categories of fund, "whether they are retail, industry fund, corporate funds or public sector funds."
"We're not talking down corporate and retail products that we manage and, for instance, I'm very comfortable with (NAB subsidiary) MLC's performance," he said.
"It's important to understand that in making this comparison, it's against the broader group of APRA-regulated funds and not against any single type."
What is clear is that SMSFs do rate very well in terms of performance against the other funds, contrary to some perceptions out there.
He noted that the better performance from the SMSFs came despite them having higher costs, a feature that often earns criticism from more established forms of superannuation.
Over the eight-year period the NAB survey found SMSFs incurred total costs of $59,404, or $7425 a year on the original $500,000 investment, which is markedly more than the $42,159, or $5269 a year, spent by the APRA-regulated fund members.
"Cheaper is not necessarily better," Mr Gall said. "For members and trustees, it is about value and it's clear that many members and trustees are actually prepared to pay for advice if they believe it's worth doing so."
An analysis of costs and net returns indicates that for the extra outlay of $17,245 over the period, SMSF trustees received eight times their money back in outperformance.
Mr Gall noted that SMSFs were known to be comparatively overweight in domestic equities and cash, with the former having significantly outperformed all other major asset classes since 2012. "In 2013, SMSFs had an average 36 per cent exposure to domestic equities whereas industry funds had between 24 and 31 per cent exposure," he said.
"Where the big difference occurs is in exposure to international equities."
"We calculate SMSFs had around 0.3 per cent exposure compared to around 24 per cent on average for the APRA-regulated funds."
"So far the difference in performance between domestic and overseas equities hasn't been that big but it could be and that's something that SMSF trustees should absolutely be looking at."
He said NAB and other banks "are working to make it significantly easier and more cost-effective" for Australian fund members and trustees to invest directly in equities overseas.
He also noted that APRA-regulated funds had much bigger exposure to fixed interest than SMSFs, an issue of modest importance now when bond prices are high and more likely to fall than rise.
But that too could change, he added.
Mr Gall said that despite hype about SMSFs allocating significant funds to real estate investments, "SMSFs on average have 15 per cent in unlisted property and, of that, all but 3 per cent is in commercial property that is mostly the premises on which SMSF trustees' businesses are operating".
"Certainly there's a problem with spruikers putting low-balance members into geared properties but I don't believe there's a concern for the SMSF system in general." he said.
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