Cash is king again. That’s what The Future Fund is telling us having shifted another $5 billion into cash since March, taking its cash holdings to 20 per cent. Yet as Andrea Slattery notes in the Australian Financial Review, “there (are) no mutterings about the fund being overweight in cash” given the fund’s 15.4 per cent return to 30 June 2015.
Why then, do organisations such as APRA quickly point the finger at SMSFs for having too much cash? Andrea highlights that most them have a “vested interest”, and are quick to view this as “a lack of investment acumen” from SMSF trustees.
Official data from the Australian Taxation Office is at odds with these critics, as for the seven years to 30 June 2013, SMSFs have outperformed larger super funds with an annual return of 4.33 per cent compared with 3.69 per cent for other super funds.
Two important trends when looking at this data closely, is that APRA funds have tended to outperform in bull markets whilst “SMSFs do better when markets perform poorly”. A reason for this is that the “SMSFs weighting in cash, Australian blue chips and property” provides a sturdy defence and even now with cash rates at historical lows, it is important to remember that they are still positive.
Another reason SMSFs have outperformed is they seek specialist advice, with Andrea highlighting that a recent report from the 2015 Intimate with Self-Managed Superannuation report showed 60 per cent of trustees either outsourced the fund’s entire operation or sought assistance to run it.
However, 2013 was the best performing year for large funds, according to ATO statistics with Andrea noting a “key factor (for this) being international equities kicking in”. This is an asset class often overlooked by SMSFs trustees due to a lack of knowledge and access. Yet as mentioned in our recent blog post ETF’s inside SMSF’s: Hedging the use of ETFs can help trustees with the problem of access, and through appropriate advice, the problem of a lack of knowledge can be overcome too.
Ultimately, there is no reason why SMSFs can’t continue to outperform large super funds over the long term as long as they have a “sturdy defence” for when markets are performing poorly, with a portion of assets allocated to growth investments that will benefit from increases in domestic and global markets.