The ICFS research, which analysed data up to 30 June 2023, found that the five-year annualised rate of return (ROR) on SMSFs between 1 July 2018 and 30 July 2023 was 6.5 per cent, compared with 5.3 per cent for APRA funds over the same period.
While the median ROR for SMSFs lagged their APRA counterparts in 2022-23 by 1.8 percentage points – 6.6 per cent compared with 8.4 per cent – the research shows they clearly outperformed over a longer timeframe.
Peter Burgess, SMSF Association CEO, said the research contributes to the mounting evidence that SMSFs deliver strong investment performance over the long term.
The SMSFA first commissioned this research project in 2021 and the ICFS has published annual performance figures for the SMSF sector for the past four years. The most recent research is based on data from 421,000 SMSFs (69 per cent of all SMSFs) provided by BGL Corporate Solutions, Class and SuperMate, with the ICFS project team comprising Dr George Mihaylov (lead), Dr Ivan Indriawan and Professor Ralf Zurbruegg.
Dr Mihaylov said this is the largest independent study of its kind, capturing the financial performance of almost seven out of every 10 SMSFs in Australia.
“APRA funds outperformed the SMSF sector in 2022-23 continuing the interchanging pattern we’ve observed previously, where APRA funds outperform in some years while the SMSF sector outperforms in others,” Dr Mihaylov said.
“However, when aggregated over the five years to 30 June 2023, the SMSF sector has outperformed APRA funds by approximately 1.2 per cent on an annualised basis.”
The research said one potential factor explaining the underperformance of SMSFs in 2022-23 compared with APRA funds was the SMSF sector’s underweight position in international equities.
“This is in sharp contrast with APRA funds that have a much larger proportion of their investments diversified overseas, typically with larger weights,” Dr Mihaylov said.
“While this home bias generally leads to sub-optimal levels of investment diversification, it can also act to dampen earnings and returns during periods where the domestic stock market underperforms international markets – precisely what happened in 2022-23 relative to some international markets.”
The research also highlighted a wider spread in performance outcomes among SMSFs in 2022-23, with minimum RORs in the top quartile of SMSFs outperforming the top APRA fund quartile (11.6 per cent versus 9.3 per cent), while the bottom quartile of SMSFs underperformed, achieving maximum RORs of only 1.6 per cent versus 8 per cent for the lowest APRA fund quartile.
Burgess said this is a perfect illustration of the aspirational benefits of an SMSF and the important role professional advice can play in assisting SMSF trustees to diversify their investment portfolio.
Dr Mihaylov said the performance difference between small and large SMSFs (defined as those with net fund assets below and above $200,000) had been a constant theme since the research project began.
“This year however, we noted a very significant difference in the performance of the two cohorts, with large SMSFs generating a 7 per cent median ROR compared with just 0.4 per cent median ROR for smaller SMSFs,”he said.
The research also suggested that advised SMSFs tended to outperform non-advised funds (7.6 per cent versus 6.4 per cent for the 2022-23 financial year).
“The results indicate that SMSF trustees who received financial advice are associated with funds that reported materially higher investment returns in 2022-23,” Dr Mihaylov said.
Burgess added that this comes as no surprise, noting it has always been the association’s mantra that SMSF trustees achieve better outcomes when they have access to professional SMSF advice.
