When Size Matters: $200,000 threshold key to SMSF performance
Large SMSFs perform better than small SMSFs because they are more diversified, operate more effectively and have longer experience in the sector, according to new joint research from SuperConcepts and the University of Adelaide’s International Centre for Financial Services.
Released today, the new research report – When size matters: A closer look at SMSF performance – looks at fund characteristics that contribute to superior performance of SMSFs.
SuperConcepts General Manager of Technical Services and Education, Peter Burgess, said the research revealed when a fund reaches a balance of $200,000, the benefits of investment diversification start to kick in.
“Our research shows size matters with large SMSFs performing better than small ones. Performance, diversification and expense ratios continue to improve as a fund increases in size,” said Mr Burgess.
Professor Ralf-Yves Zurbrugg from the University of Adelaide said there is a “double whammy” for those SMSFs with balances under $200,000.
“These funds not only have much larger expense ratios compared to larger funds, but they also lose out due to their inability to achieve adequate levels of investment diversification,” said Professor Zurbrugg.
Large funds are more efficient in their operation, in terms of the direct expenses involved in managing an SMSF. When a fund reaches $550,000 under management, its expense ratio dips below two per cent and diversification and performance is comparable to the largest funds.
When size matters: A closer look at SMSF performance is the first in a series of reports to be released by the SMSF Centre of Excellence which aims to examine the relationship between fund activity and performance, diversification and performance, and the relationship between trustees seeking advice and performance.
Using data from over 20,000 SMSFs from 2008/09 until 2014/15, the report examines how fund size affects performance as well as other fund characteristics including investment diversification and expense ratios. SMSFs in the data set have outsourced their administration, and possibly other aspects of their operation to an external party.
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