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2009 Performance of SMSFs

Last week we had a few performance reports released for SMSFs and large super funds. On Thursday 20 Aug 2009, the large SMSF administration specialist Super Concepts released the average annual returns and average asset allocations for 2008-09 for a sizeable portion of the funds under its administration. Thanks to Robin Bowerman for bringing this to my attention on his SmartInvesting blog. This study was based on the average returns and asset allocations for 1,500 SMSFs in the accumulation and pension phases – about a third of the funds administered by the firm.

The SMSFs in the pension phase returned a negative 8.14% in 2008-09 against a negative 3.09% in the previous year.

Funds in the accumulation phase returned a negative 7.89% in 2008-09 against a negative 7.84% in the previous year.

According to the report, the Super Concepts data for 2008-09 show how the average SMSF in its study hasn’t been as negative as might have been expected. This is because many of the trustees, on average, increased their cash holdings while cutting back on listed shares – a course not taken by most members of large super funds who generally stayed with their long-term asset allocations.

The above statement reconfirms what we have been saying in previous posts such as Elephants Can’t Dance that one of the advantages of having your own SMSF is the ability for small funds to be nimble and we can change our asset allocations at a short notice, something that large funds cannot do easily. Another evidence of this was clearly seen on Friday, August 21 when Telstra shares, and in fact the whole Australian market, fell heavily when The Future Fund decided to sell 2 billion of its Telstra shares.

On the same day, APRA also released reports showing the three and five year performance of the 200 largest superannuation funds.  Unfortunately, their report only included data up to 2008 and does not include performance for 2008-09 which is expected to be worse than 2007-08. Thanks to Christie from Dollars and Sense blog for bringing this to my attention. From my analysis, only 6 funds showed positive returns in 2008. All others showed negative returns. The worst performing fund had a negative 27.6% return and the best performing fund had a positive 4.9% return. Only 26 funds had five year returns of more than 10% and only 3 funds had three year returns of more than 10%. This is quite worrying as five year returns included three of the best performing years in the Australian and most international stock markets. If your super money is still with a public super fund, you might want to check this report on APRA website to see how well your fund performed and consider changing to a better performing fund if you are not happy with yours. You can download the data in excel format so you can do your own further analysis.

Using APRA’s formula for calculating Rate of Return (ROR) where

ROR = Net earnings after tax / (beginning assets + half net flows)

I am expecting our SMSF to have at least a positive 11.6% ROR for 2008-09 (subject to confirmation by my accountant). Not a bad result compared to industry average which calls for a small celebration . [Update on 13 Nov 2009: Just received our audited accounts and confirmed our fund's ROR for 2008-09 at 12.23%]

Image courtesy of svilen mushkatov.

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