New research debunks SMSF gearing concerns
New research has pointed to the benefits of protected equity loans and labelled calls to ban gearing in SMSFs “just plain wrong".
ASX Listed Product Accreditation Course (LPAC) analysed real returns of share portfolios initiated between 1 January 1994 and 30 October 2014, finding that share gearing using protected equity loans “boosted the performance of a range of different share portfolios”.
“Even more interesting was the finding that small, concentrated portfolios perform better than larger portfolios when a protected equity loan was used,” said LPAC founder Dr Tony Rumble.
Dr Rumble – who is also head of learning at the SMSF Owners’ Alliance – said the research indicates advisers and SMSF investors need to reconsider gearing as part of a well-rounded investment strategy.
“The financial planning industry should carefully consider the use of protected equity loans by SMSF as an important tool to help deliver enhanced returns with risk mitigation embedded within these products,” Dr Rumble said.
Dr Rumble said the findings of his research also suggest calls to ban SMSF gearing are unwarranted.
“Our research shows that concerns about SMSF gearing expressed by the Murray [Financial System] Inquiry and by the Cooper Review of superannuation ignore the real benefits available from careful use of protected equity loans,” Dr Rumble said.
“Margin lending disasters like Storm Financial could largely have been avoided if protected equity Loans were used,” he said.