SMSF investors failing to beat market

Most self-managed superannuation funds (SMSFs) do not outperform indices, meaning most are better off investing in index funds, according to research from the Monash Centre for Financial Studies (MCFS).

The report, ‘Is there wisdom within the crowd’ was conducted in collaboration with SelfWealth and co-author Dr Nga Pham said the results did not paint a rosy picture.

“Overall, when we analysed this whole SMSF investor community in the database, we found that on average SMSF investors did not beat the market,” Pham said.

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“We created an index to represent the performance of the SMSFs in the sample. To put it in dollar terms, $1 invested in the S&P/ASX200 from mid-2012 would give you almost $2.50 up until the peak before the COVID-plunge in March 2020.

“The performance of SMSFs was worse than that. $1 invested in 2012 would become only less than $2.20 just before the pandemic.”

Pham said SMSFs had lower volatility than the broad market index during the years examined but still had lower risk-adjusted returns.

“Basically, it just means that for most of these SMFSs, they would have been better off investing in an index fund that gives them broad exposure to the Australian market than managing their own portfolios,” Pham said.

In the research, Pham said portfolios with at least 20 stocks were put into four groups based on size, with the largest group having assets of more than $1.65 million while the smallest group had less than $400,000.

“We find that large funds performed better than small funds during the first period of our analysis,” Pham said.

“In the subsequent period that includes the pandemic time, the performance of the groups were relatively similar.

“However, the performance persistence of large funds over the whole study period was better than small funds.”

Co-author Dr Bei Cui said most SMSFs in the study failed to keep up with the market, but there was persistence among the best SMSF performers in the community.

“It suggests that there was some level of wisdom within the crowd among the top performers and in that spirit we developed an approach to use historical performance indicators to identify past outperformers.

“Our expectation was that these portfolios would continue to do well in the future. We have back-tested various risk and performance indicators to pick up the top performers each year and indeed we saw that these top performers still performed well in the following year, which validated our conjecture.”




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I'd value a peer review of this from the SMSF Association, or someone nominated by them. We all saw the issues with the definition of return differing between SMSFs and larger funds, and the resultant fake news. SMSFs have an older demographic which may skew investments into more conservative shares than the overall market, and different cash flow s with contributions and pensions occurring heavily in June could also skew results. The research may be correct, but having it reviewed would be valuable. People could make investment decisions based on reading articles like this.

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