Self-managed superannuation funds produced higher investment returns than APRA-regulated industry and retail funds last year, according to industry consultant Rice Warner.
Using publicly available figures supplied by the Australian Taxation Office and the Australian Prudential Regulation Authority, Rice Warner calculated that the average SMSF return in 2016 was 3.4 per cent – just ahead of the 3.3 per cent average return for APRA funds.
Since 2005, SMSF funds have produced an average return of eight per cent a year, while APRA funds have produced an average return of 6.4 per cent a year.
“In our opinion much of this performance can be attributed to asset allocation, patient long-term investing and tax optimisation at the investor level,” Rice Warner says.
At last count SMSFs had 48.1 per cent of their assets in Australian equities, 25.2 per cent in cash, 15.6 per cent in property, 8.5 per cent in alternatives, 1.9 per cent in fixed interest and 0.6 per cent in international equities.
This is very different from APRA funds, which have larger holdings of international equities and fixed interest, and only about 10 per cent allocated to cash.
Rice Warner says: “It should be noted that estimates of Australian equity holdings in SMSFs are overstated by the fact that many SMSF members use exchange traded funds for international exposure.”
Rice Warner’s estimate for fees paid by SMSF trustees in the 2015/16 financial year is 0.99 per cent of assets. “This is inflated by including the estimated cost of interest margins on bank deposits as a fee whereas interest margins are excluded in calculating fees for APRA-regulated entities,” it says.
“The average SMSF fee is still lower than the market average for all APRA-regulated funds, showing that the sector has generated some scale benefits from aggregation of administration and software platforms.
“It should be noted that small SMSFs incur relatively high fees, whereas many larger self-directed funds not using financial advice have fees as low as 10 basis points.”
Rice Warner estimates that a minimum balance of $200,000 to $500,000 is required to make SMSFs cost effective relative to APRA-regulated funds.