Investors who turned to DIY super funds on the promise of superior returns may be getting less than they bargained for, new Rainmaker research shows. The unprecedented growth of the SMSF sector has eclipsed regular funds in recent years.
The latest data from the Australian Tax Office (ATO) shows that there were 35,276 new funds registered last year, up 26% on the previous year, and new Australian Prudential Regulation Authority (APRA) figures shows the total number of SMSFs has now risen to 478,263.
But while SMSF members tend to come out on top in satisfaction surveys, there is no evidence to show SMSFs outperform their regular fund peers.
SMSF performance analysis shows the segment to perform competitively against other segments of the superannuation market.
However, given that there are so many SMSFs, Rainmaker head of research Alex Dunnin notes that statistically there should be many tens of thousands of SMSFs that underperform and a corresponding amount that outperform.
Rainmaker data shows that while 34% of SMSFs significantly outperformed each year between 2008 and 2011, an average 42% significantly underperformed.
The research does reveal, however, that larger funds tend to generate stronger returns than smaller funds, suggesting the importance of scale. Indeed, the scale effect is much greater among the SMSF segment than it is in regular funds.
In 2008 and 2009, the ATO data shows that only SMSFs with more than $1 million outperformed the segment average while in 2012 and 2011 only SMSFs with more than $500,000 outperformed.
Dunnin says these results suggest that SMSFs should only be established with an investment and performance objective in mind and the threshold for achieving the objective is likely to be $500,000.
“The inescapable conclusion is that actively and intelligently managed SMSFs accompanied by appropriate asset growth strategies are highly likely to outperform,” he concluded.