Note: The ATO publishes an annual report about SMSFs for each financial year. This article covers the latest SMSF performance data available from the ATO, as at January 2018. The ATO will provide updated performance data (for year ending 30 June 2017) in January 2019.
A common argument put forward against individuals starting a self-managed super fund is that budding SMSF trustees could lose their hard-earned super savings through inexperienced investing, and bad investment decisions. Until relatively recently, there wasn’t much evidence confirming or denying this ‘world view’ mainly proffered by the large super fund sector.
The ATO now publishes SMSF performance data and the real story is quite startling. Until the 2015 year, SMSFs had consistently outperformed the large fund sector over the cumulative timeframe, but year-by-year, the large fund sector (corporate, industry and retail funds) have outperformed SMSFs in five years out of ten, and performed equally to SMSFs in two other years (see Table 1 below).
What is the most startling aspect to the performance data, is that over the 10-year period to 30 June 2016, the compound annual earnings rates delivered by SMSFs and large super funds are virtually identical although the large fund sector does outperform SMSFs, just!
Note: Although not discussed in the ATO’s statistics, SuperGuide considers a possible reason for the year-by-year outperformance (see Table below) by the large fund sector in recent times, is that SMSFs are traditionally overweight in cash and Australian shares. With low interest rates and a volatile sharemarket, this asset allocation has delivered lower returns compared with the large fund sector’s higher weighting in unlisted assets such as infrastructure and property, which have performed comparatively well. The older demographic of SMSF members, compared with large fund members, also may indicate that assets are held in more conservative allocations to allow liquidity for pension payments, and hence delivering a lower return overall.
It would be interesting to see the performance statistics on SMSFs for those funds not in pension phase.
Large funds outperform over the long term, on average
When you look at the average annual return over the 10-year period to June 2016, the recent outperformance by the large fund sector is now prevailing over the longer term. Based on the figures in Table 1 below (see later in article), the average annual return over the 10-year period to 30 June 2016, is:
- 4.87% a year, for SMSFs
- 5.01% a year, for large super funds.
Note: For the 2016 financial year, SMSFs matched the performance of the large super funds, both delivering 2.9% for the 2015/2016 year, according to the ATO.
Important: When comparing the annual compound earnings rate over the 10-year period the performance of SMSFs (5.16% a year) is nearly identical to the performance of large super funds (5.18%).
In anyone’s language the long-term averages listed in the bullets above are not impressive for either category of super fund, but note that the Global Financial Crisis occurred during this period. We will be able to get a better sense of long-term investment performance when the ATO releases the 2017 financial year performance data.
Copyright reminder: The average return figures for 10 years listed above are calculated by SuperGuide, and are not official ATO figures (since the ATO does not produce these calculations). The calculations however are based on official data appearing in the tables below, sourced from several ATO reports over the past 10 years. The ATO’s latest report (released in January 2018) only provides performance data for the previous 5 years. Some yearly returns have been adjusted by the ATO over time, and these adjustments are incorporated into the table below. Several investment websites have been publishing previous versions of the SuperGuide calculations, and relying on our analysis, without attributing our site as the source or seeking SuperGuide’s permission. Instead, they are quoting the 10-year averages (or 9-year, or 8-year or 7-year average annual returns from previous SuperGuide editions) as ATO official figures.
Large funds outperform SMSFs on a year-by-year basis
Now that updated performance figures for the 2016 financial year are available (delivering 2.9% for large funds, compared with 2.9% for SMSFs for the 2016 year), the large fund sector just wins the outperformance year-by-year debate. With the adjustment to the performance figures for the 2016 financial year, the large fund sector can now claim to outperform SMSFs five years out of 10, but also equally matches SMSF performance in two other years.
SMSFs outperformed large super funds for the three financial years ended 30 June 2007, 30 June 2008, and 30 June 2009, but large super funds performed better for the 2 years ended 30 June 2010 and 30 June 2011, and for the 3 years ended 30 June 2013, 30 June 2014, and 30 June 2015. Note that for the financial year ended 30 June 2012, both SMSFs and large funds delivered a return of 0.4%, and for the year ended 30 June 2016, both SMSFs and large funds delivered a return of 2.9%.
SMSFs vs large funds year-by-year investment performance
|Financial year||SMSFs (%)||Large funds (%)||Outperformer|
|2008||-5.9% (loss)||-8.1% (loss)||SMSF|
|2009||-6.7% (loss)||-11.5% (loss)||SMSF|
|Average annual return over 10 years||4.87%||5.01%||Large funds|
Note: While the methodology used to estimate SMSF performance resembles APRA’s, the data collected is not the same. The data in the table above is sourced from eight ATO reports: SMSFs — A statistical overview 2015-2016, SMSFs — A statistical overview 2014-2015, SMSFs — A statistical overview 2013-2014, SMSFs – A statistical overview 2012-2013, SMSFs – A statistical overview 2011-2012, SMSFs – A statistical overview 2010-2011, SMSFs – A statistical overview 2009-10, and SMSFs – A statistical overview 2008-09.
Source: Table created by SuperGuide using ATO performance data collected by SuperGuide over the past 10 years.
Compound annual earnings rate is a tie, nearly
Year-by-year performance comparison between SMSFs and large funds is interesting and a great conversation starter (at least for those who work in the super industry), but what really matters in terms of long-term wealth creation is the compound annual earnings rate that a SMSF, or a large super fund, can deliver.
Over a 10-year period, which includes the Global Financial Crisis and its aftermath, the compound annual earnings rate of SMSFs to 30 June 2016 was 5.16%, and the compound annual earnings rate for large funds was 5.18%. Very close result, but large super funds outperform SMSFs, just!
For more information on SMSF investment performance and asset allocation see the following related SuperGuide articles:
- SMSF confidential: the inside story on DIY super funds
- SMSF investment: What assets do DIY super trustees prefer?
- Asset classes: Naming the investment winners for the 2017 calendar year (and previous years)
- Asset classes: Naming the investment winners for the 2016/2017 financial year (and previous years)
You can also check out the following ATO reports on the ATO website:
- Self-managed super funds: A statistical overview 2015-16
- Self-managed super funds: A statistical overview 2014-15
- Self-managed super funds: A statistical overview 2013-14
- Self-managed super funds: A statistical overview 2012-13 (no longer available online)
- Self-managed super funds: A statistical overview 2011-12 (no longer available online)
- Self-managed super funds: A statistical overview 2010-11 (no longer available online)
- Self-managed super funds: A statistical overview 2009-10 (no longer available online)
- Self-managed super funds: A statistical overview 2008-09 (no longer available online)