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Home bias saw SMSFs outperform APRA funds during brutal 2022 market slide

In a year when Australian equities far outperformed international stocks, APRA-regulated funds felt the brunt more than SMSF trustees, who still favour the double dipped income of franked local dividends.

A strong preference for domestic over international equities and a natural proclivity to negate portfolio risk saw self-managed superannuation (SMSF) funds suffer far less damage during FY2022’s precipitous market fall according to new research out of Adelaide University.

The median SMSF fell back only one per cent in FY2022, compared with 5.1 per cent for the median APRA fund according to research by the University of Adelaide’s International Centre for Financial Services (ICFS).

The 4.1 percentage point margin is the largest seen in the six years that the university has been studying the two cohorts’ respective performance. Based on 394,000 SMSFs (67 per cent of all SMSFs), the research showed that 38 per cent of SMSFs had positive returns in the financial year, compared with less than five per cent of APRA funds.

  • In a financial year where the ASX/200 fell more than 10 per cent, and the S&P 500 by around 20 per cent, the aggregate performance of SMSFs was always going to hold up better than APRA funds, given the proportion of SMSF trustees who are in the pre- and post-retirement demographic. Older Australians with more conservative risk profiles will naturally have less allocation to equities and other investments deemed higher risk or volatile.

    But it’s other factors, according to the research, that exacerbated the delta between SMSFs and APRA-regulated funds when markets really hit the skids. One of those factors harks back to the fact that Aussie investors still favor domestic equities over international equities – especially those in the pension phase of retirement, who like the income generation afforded by franked dividends doled out by most Australian companies.

    In a year when Australian equities far outperformed international stocks, which took a beating after technology stock prices wobbled and the Ukraine War played havoc with supply chains, APRA-regulated funds were hurt by their higher allocation to overseas indices.

    “In our opinion the outperformance by SMSFs was due, in part, to being underweight international equities and overweight domestic equities in a year where the local market outperformed some international markets,” said Dr George Mihaylov, who heads the ICFS research project commissioned by the SMSF Association.

    “We have shown in earlier research that less than two per cent of SMSFs hold international equities, most often with allocated weightings that are low. This is in stark contrast with APRA funds, of which a much larger proportion diversify internationally, typically with larger weightings,” Mihaylov continued.

    “Although this home bias generally leads to sub-optimal levels of investment diversification, it can also act to boost earnings and returns during periods where the domestic stock market outperforms some key international markets – precisely what happened in 2021-22 relative to the U.S.”

    Commenting on the research, SMSF Association CEO Peter Burgess highlighted that this wasn’t the first time SMSFs had outperformed APRA regulated funds.

    “This research contributes to the mounting evidence on the strong investment performance of the SMSF sector,” he commented. “Over the period 2017-2021, SMSFs have outperform APRA funds in some financial years, and this now includes 2021-22.”

    Staff Writer

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