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The investment strategies of APRA funds struggled to cope with the 2021–22 market downturn, Adelaide University research finds.
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SMSFs ‘outperform big super funds by record margin’
15 February 2024
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SMSFs outperformed the APRA fund sector by a record 4.1 percentage points in 2021–22, the largest margin in six years of research into super fund returns, according to the University of Adelaide.
Its Centre for Financial Services found that the median APRA fund fell 5.1 per cent during FY21–22 against the median SMSF which retreated just 1 per cent, and just 5 per cent of APRA funds generated positive returns against 38 per cent of SMSFs.
Research chief Dr George Mihaylov said the results suggested most SMSFs had an effective investment strategy favouring domestic shares and defensive assets.
“In our opinion, the outperformance by SMSFs was due, in part, to being underweight international equities and overweight domestic equities in a year where the local market outperformed some international markets,” he said.
“We have shown in earlier research that less than 2 per cent of SMSFs hold international equities, most often with allocated weightings that are low. This is in stark contrast with APRA funds, of which a much larger proportion diversify internationally, typically with larger weightings.”
“Although this home bias generally leads to sub-optimal levels of investment diversification, it can also act to boost earnings and returns during periods where the domestic stock market outperforms some key international markets – precisely what happened in 2021-22 relative to the US.”
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“Another contributing factor to this outperformance was that a substantial sub-group of SMSF trustees pursue defensive asset allocations and defensive asset classes.”
Dr Mihaylov said the study, which examined two-thirds of SMSFs (almost 400,000 funds), was consistent with previous findings while the SMSF Association, which commissioned the research, said it showed the resilience of SMSFs during market downturns.
SMSFA CEO Peter Burgess said the results were more evidence of the strong investment performance of the sector.
“Over the period 2017-21, SMSFs have outperformed APRA funds in some financial years and this now includes 2021-22.”
He said a disparity with data from the ATO last week that put the median SMSF return for 2021–22 at -1.8 per cent (against -1.0 per cent in the Adelaide study) came down to different statistical approaches.
“The data inputs and methodology used by the University of Adelaide are more closely aligned with the way the APRA fund sector calculates returns, so it provides a more reliable comparison of the relative performance of the two sectors,” he said.
The latest fund data comes as lodgement deadlines loom for SMSFs, with 15 May as the date for tax agent filings and 28 February as the cut-off for returns not filed through an agent.
The director of tax communications at H&R Block, Mark Chapman, said the small minority of SMSFs that eschewed tax agents would miss the deadline unless they already had an audit under way.
“The financial statements can be done by the trustee themselves but they’ve also got to be audited and the audit does need to be completely independent,” he said. “Realistically, the auditor needs to be appointed at least 45 days before that lodgement date.”
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