New research shows Self Managed Super Fund outperform ‘big super’ when markets turn nasty

New research on SMSFs suggests that smaller funds do better than ‘big super’ in a market storm such as the pandemic-induced downturn in 2020.

Fresh evidence suggests conservative Self Managed Super Funds focused on local shares and cash do better than globe trotting ‘big super’ when markets are tougher.

The new results, from the University of Adelaide, may have arrived just in time to reassure the one million-plus investors in SMSFs, since it turns out recession fears worldwide mean the majority of institutional investors have suddenly turned defensive.

State Street, one of the world’s biggest investment groups, says this week that institutional investors remained defensive over the last month and there has been “a broadening defensive behaviour across all asset classes”.

The University of Adelaide’s International Centre for Financial Services (ICFS) report says SMSFs fell behind big super – also known as “APRA regulated funds” – in the relief rally of 2021.

Big funds returned 16 per cent in 2021 beating SMSFs, which returned 14.8 per cent.

But one year earlier, when markets were struggling with the pandemic, SMSF losses were only half as bad as those within big super – SMSFs were down 0.6 per cent, while big super returns were 1.2 per cent lower.

With SMSF funds now having to negotiate “sticky inflation” and higher than expected interest rates, the ability of independent investors to navigate rocky markets will be crucial in the months ahead.

As investors remain very concerned about a global recession, the Macquarie Group’s chief economist Ric Deverell has put the chances of a soft landing for the global economy at just 20 per cent.

SMSF Association chief executive officer Peter Burgess

Commissioned by the Self Managed Super Funds Association, the ICFS report based its finding on comparisons between SMSF sector returns and APRA returns.

The report looked at performance for funds in 2020 and 2021 that had more than $200,000 in net assets and had less than 80 per cent in cash.

Professor Ralf Zurbruegg, a co-author of the report, suggests the results reveal “the benefits of diversified asset allocations and the importance of individuals selecting into SMSFs appropriately based on threshold superannuation balances of more than $200,000”.

Although there has been wide debate over how much investors should have in super to start an SMSF, the report coincides with new Australian Taxation Office statistics that show that the median amount in new super funds commenced in the most recently assessed period (2020-2021) was $264,000, down from $297,000 in 2017.

Peter Burgess, the CEO of the SMSF Association says: “I think you will find that SMSF commencement amounts are declining because we are getting younger age investors starting funds. About 40 per cent of new commencements are now under the age of 45.”

He adds: “The recent research from the ICFS shows that from an overall SMSF sector perspective there is no systemic underperformance when compared to the APRA fund sector.”

SMSF investors have had to tackle a range of new regulations that have clipped opportunities in the sector in recent times, including shrinking contribution limits and the new 15 per cent tax which doubles the tax on super balances above $3m to 30 per cent.

The research also found that even inside the SMSF sector, smaller SMSFs appear to be just as robust when things get tough in the investment markets. The research found that “fund size appears to have provided little to no protection from the downturn”.

“Our results show that the overall financial performance of the SMSF sector remains robust weathering the 2020 Covid induced market storm relatively better than the APRA sector.” professor Zurbruegg says.

Originally published as New research shows Self Managed Super Fund outperform ‘big super’ when markets turn nasty