Defensive bias hurting SMSF performance: Research

Lower weightings to growth assets - particularly international equities - in the average SMSF is dragging down its performance relative to default MySuper indices, according to SuperGuard 360 research.

In the 12 months to 31 December 2017, the SG360 SMSF reference index returned 9.2% - somewhat lower than the SG360 default (MySuper) index, which returned 10.5%. Over five years, this gap widens to a 7.8% return from the SMSF reference index and 9.6% for the default index.

The reason for this, SuperGuard 360 explained, is that SMSFs generally have lower allocations to growth assets. Less than 10% is generally invested in international equities, while these assets make up about 20% of the equivalent MySuper product. SMSFs also have a much larger weighting towards Australian equities and cash.

SuperGuard 360 explained: "As a result, it is expected that SMSF portfolios will continue to underperform while the equities bull market continues."

"Smaller SMSFs that traditionally hold lower allocations to equities are likely to underperform by an even wider margin. This highlights how important it is for SMSF trustees to actively review their investment strategies and not focus on only perceived tax advantages," SuperGuard 360 said.

The research noted, though, that the gap narrows somewhat over a 10-year period, where the SMSF reference index returned 4.8% per annum and the default index returned 5% per annum.

To put this in perspective, over 10 years an initial investment of $100,000 in the average SMSF would have grown to $160,000, while the same amount invested in the average workplace super default investment option would have grown to $163,000.

The SuperGuard 360 indices are owned by Rainmaker Information and its group of companies.

Read more: SMSFSuperGuard 360MySuperRainmaker Informationsuperannuation
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