Are SMSFs getting too much of a free ride?

SMSFs are treated no differently tax wise to Large Super funds.

May be the managers of SMSFs are just better managers of what they have. That is despite the fact that they have many more members in retirement and therefore have to retain more lower performing Cash to allow for the compulsory % Annual Withdrawals each year from their SMSF. This makes for more difficult management than Large Super.

SMSFs also don't get the benefits of Large Super like privileged access to better deals, IPOs etc., lower Transaction costs, the benefits of scale, the ability to set more of their asset purchases for longer time frames and so on.
Yet SMSFs get better returns.

May be the focus of Government needs to be on Large Super which is NOT delivering the returns it should be to its' Members despite having these built in inherent advantages.

The discussion on here reminds me of friends and family that brag about how much they've made on certain stocks. What you don't hear is about the losses. And here you won't find people admitted that they've trailed super fund returns. 

That said, the data on SMSF allocations is patchy and the ATO needs to fix it.

The opening sentence sets the tone for the whole article. "Self-managed super funds (SMSFs) in Australia have some peculiar attributes, the most glaring being the almost complete rejection of international assets in their asset allocations and a seemingly unhealthy obsession with relatively low yielding cash deposits." The comments here would suggest that assumption is wrong as ASX listed ETF's are all classed as domestic, even if the ETF invests exclusively internationally. The ease of ETF investing, the lack of arduous paperwork etc makes ETF's the gp-to investment vehicle for many SMSF's. The alternatives don't perform better to justify the hassle. A simple exercise might be to look at the size of all ETF's and work out the proportion that is truly domestic (eg VAS) and those that are international (eg QUAL) and assign the same split to the equity holdings of SMSF's. SMSF's are a large chunk of investable assets in Australia so to apply the same split would not seem overly presumptuous. 

This guy wonders why the now nearly 25% of super money in SMSFs, where owners take full responsibility and control of their own money, achieves legal and prudent returns that he calculates to be in excess of what fund managers like himself can achieve with their economics degrees and management fees.
His conclusion - it must be those “unfair tax concessions” given to SMSFs!!
His proposition, analysis and conclusions are flawed

. 
1. Franking Credits were introduced to cease the double taxation of company dividends which was both unfair and inefficient. Franking credits are available to all shareholders and operate by design to ensure that dividends are taxed at the ultimate beneficiaries rate of tax. All super funds are treated equally.
2. What proportion is in accumulation vs pension phase is irrelevant to the conclusion.
3. The last time I checked investment in property is allowed to all superannuation funds. Negatively geared property means you are making an annual loss and at lower concessional tax rates in super funds costs the govt less in tax concessions. Capital Gains Tax is also payable in super funds but at a lesser discount to individuals or those who invest in their own principal place of residence which is CGT free. Go complain about that too!
4. “Tax Friendly Investment vehicles” – available exclusively to SMSFs?? Please elaborate on these so we can all learn something useful.

This article is interesting though feels tinged with sour grapes. According to the law all superannuation funds are governed by the same rules.

My SMSF has performed admirably but not for the reasons cited in the article. It’s was simply sticking to Australian stocks that pay increasing fully franked dividends, avoiding chopping and changing plus minimising costs. It’s not rocket science.

Their hands may be tired but I’m confident if professional managers adopted the same approach they would also achieve comparable returns to SMSFs.

Surely the returns are calculated pre tax and not post tax. Given this I do not think tax is the reason SMSFs have shown a higher return. Maybe not needing to adhere as closely to benchmarks is part of the reason.

I don't believe the asset allocation data on SMSFs.

I have an SMSF. I always have a bit of money in a cash ETF because it offers a higher yield than my SMSF bank account. The software my SMSF administrator uses classifies this as Australian Equities. The ATO rely on this data.

Does it also classifiy an ASX listed international equities ETF as Australian Equities? I would be curious to know.

Super fund shall be nothing but the primary income stream for retirement, I would start as early as at 50 yr old to shift the portfolio assets to income generating financial assets. However, if the financial assets are of mostly in listed equities, how stable and even growing income can be obtained from stocks ? Dividend distributions is the only source that INCOME can be provided - here we will confront an awkward situation that I feel is overlooked by most financial experts and advisors- dividend can not be a reliable and stable source of income stream: first, dividend is not enforceable by shareholders ( it is 100% at the discretion of the board of directors, how much the pay out ratio the shareholders have no say at all); second, dividend is highly economically sensitive to the general status of the global economy, so it is volatile and cyclical even the companies you invested are divided paying friendly. I raised this phenomenon to encourage open minded discussion to challenge current popular conventions in Australia.

The assets of a SMSF are just a snapshot at a certain time. It doesn't reflect that shares are bring bought and sold throughout the year in SMSFs.
Returns may be greater from international equities but its easier to hold them as ETFs which are considered Australian equities.
If markets are high SMSF can easily sell shares and hold the proceeds in cash until the next market correction. It's all about making a good return while minimising risk.

Exactly Kerrie,

The data only shows what the assets were at midnight on 30th June 2025.
The SMSF could have owned bitcoin or all sorts of other exotic investments that made high returns and liquidated these before 30th June to show a bunch of cash to the auditor on 30th June.

The data doesn't capture what the SMSF were actually doing for 364 days of the year, so you can't make the assumption that the asset allocation was the same for every day of the year.

This is a very strange article.

This article is trying to answer the question of why did SMSF make a 34% return when large funds only made a 20% return.

The author looks at asset allocation of SMSFs and according to the author, SMSFs should have generated only a 23% return using the asset allocation reported.

Then, instead of thinking about why SMSFs have generated 34%, he just takes the easy way out and blames tax, which doesn't make any sense, because the tax treatment of SMSFs and large funds is exactly the same.

The reasons why SMSFs have generated 34% using an asset allocation that the author thinks should only generate a 23% return could be many, and these were not explored at all in the article.

Some of them are as follows:
* Asset allocation is only reported on one day per year to the ATO, on 30 June each year. The data doesn't tell you what SMSFs were doing on the other 364 days of the year. So, SMSFs could have had better timing, selling high and buying low, and none of that activity would be captured by asset allocation percentages data on 30 June.
* The asset allocation could be something like Australian stocks, but SMSFs might have picked better-performing stocks within that asset class than what the average return for that asset class might suggest.

Clearly a biased article. We moved to a smsf to avoid the high fees of big super. Descriptions critical of this are nothing but envy, also sheer bloody kindness. The Author will retire one day and I expect they will seek to achieve the best return possible so they are comfortable like the rest of us. Note not rich, comfortable. Reminds me of other articles about all the grey haired people have so many assets. They worked and saved for them, trying to put away for a rainy day and not impulse buy. A new car is great, so is a 2 year old one without the massive depreciation loss.

It is disappointing that a finance professional continues to perpetuate the myth that franking credits only benefit retirees. Franking credits are additional taxable income to ALL Australian shareholders that most taxpayers use to pay their tax. Retirees get the extra income as cash. A super pension has the advantage that the fund is tax exempt and pension payments are also tax-exempt. But that applies to all super funds, including large super funds.

Retirees have an income focus to pay the bills. Australian Blue Chip shares, with their franked dividends, provide generous income and growth opportunities as well. However, a bias to Australian shares comes with market volatility. Sophisticated investors like SMSFs understand that the dividend income is much less volatile than the market prices. Large super funds understand that market volatility gives their (generally) unsophisticated members nightmares, leading to irrational decisions. They prefer diversified investments with less exposure to shares.

SMSFs’ “unfair” advantage simply reflects the fact they have more retired members who are actively engaged investors with a clear understanding of both the superannuation and taxation rules.

Hear, hear! Well said.

You always make sense John. Why can’t some financial professionals just realise that SMSF trustees just want to take responsibility for their own financial outcome and retirement income. It is frustrating to read articles that infer we gain more tax benefits than Industry Funds. We have to work within the Superannuation framework and when changes are suggested and recommended that’s more frustrating than our investment volatility.

One item that is constantly overlooked is that APRA regulated industry funds are taxed 10% on unrealized capital gains by the ATO. Individual members don't pay the tax, but it is reflected in the unit prices. SMSFs don't pay this tax.

James,

Regarding costs. Say the average overall share market return is 8% per annum. A 0.5% per annum difference in management costs (on the total asset value) is actually about 6.2% difference per annum of the income of the fund. An extra 6% per annum makes a large cumulative difference over a number of years.

Funds like to compare fees as a percentage of gross asset value, not as a percentage of income earned!

We have an SMSF because 25 years ago a financial planner advised us that they would ONLY charge us 3% (of gross) i.e 37.5% of annual income.

So are SMSF’s receiving an undeserved benefit or do other Super Fund fees need to be reduced?

The tax side of outperforming is a result of accountants being involved. We see members approaching age 65 and can discuss tax savings from accessing super as a pension. It can be a 5 or so minute conversation when the annual accounts are signed, saving thousands in tax each year. Switched on and engaged fund members quickly come back instructing pensions to be started. I expect SMSFs have a much lower % payment of tax after death for the same reason. Not all accountants look at this, but there's enough good ones, and enough engaged members, to make a difference. I noticed pre the GFC a lot of SMSFs left contributions in cash, and others sold down assets. Everyone had the same information, the extra engagement saw SMSF members take action on it.

It seems to me that the ATO asking for a breakup of a SMSF's investments is unnecessary and mostly none of their business. It is the auditor that checks a fund's Investment Strategy for compliance. The only reportable amount should be re the amount of money invested in collectibles. That is also an audit responsibility.
I agree regarding fees that Big Super cannot compete with a well-managed SMSF. I recently wound up my SMSF and transferred its shareholdings in specie for $550. Try that with Big Super. I am also wondering if gold bullion is regarded as international diversification. Also, gold bullion held physically is not available in Big Super, I have held it for very little cost in my SMSF ,

A few random comments on this post.

1. The author of this piece fails to mention costs which. Cost is a major factor in determining the return on your investment. My wife and I are not rich, by any stretch of the imagination, however our cost in running our modest SMSF. This covers super fund administration, audit frees, brokerage, industry fund & etf costs and Morningstar share advice. This current year just finished, it’s ran at .025%

2. The author writes “SMSFs have a much high share of members approaching retirement and likely to be skewed to highly beneficial franked dividend income streams”. I can’t believe anyone skilled in investing would make such an incorrect statement.” Shares with franking credits don’t return an higher return than shares without franking credits. If at a point in time a share with franking credits bids higher than the pack, its price will go higher, till its return for new entrants is bought back to the pack. That’s how investing works; buy low, sell high.
If the author is inferring that the SMSF in pension phase has a higher return, compared to any superannuation fund in contribution phase, because it gets a stream of cash franking credits, then that is just incorrect. A thousand dollar franking credit used to reduce tax payable, has the same value to the investor who gets that thousand dollars as cash because the investment is in a superannuation fund in pension phase/.
3. Sure, investors in public superannuation funds, or industry funds, can’t take out a margin loan to invest in shares (or property). However they can invest in leveraged unit trusts, ETF’s or managed funds.

Perhaps I am being ripped off, as we pay $3k p.a. to a well known large SMSF administration company to handle everything except investment decisions for our 2-member $3m fund. That's 0.1% or 4 times the rate you pay, suggesting you may have more than we do in your SMSF. For comparison, Aware Super charges my wife 0.85% in pension phase for her non-SMSF super balance, Performance is comparable to our SMSF, but I can't convince her to fold her Aware balance into our SMSF, where no incremental fees would be payable.

I think that you may have made a mistake on that calculation of 0.025% fees. It means if you have a $4M fund then all those fees only amount to $1,000. My audit and ASIC fees come in just above that but if if I include brokerage and ETF costs then I can't do it, they are capitalised in the share prices. I do my own tax returns and administration but cold never get to that level.

I think there is a lot of truth in an SMSF's better performance due to their more hands on tax management of the fund. We've managed our SMSF (no Accountants or advisors, only an annual audit performed externally) for over twenty years now. Since the GFC, we have harvested franking credits and unrealised capital gains, always offsetting capital gains made against capital losses that had been held. The purchase of a geared residential property also assisted on bringing down annual income with depreciation and the interest costs.
Now we are both in Pension mode, the property has recently been sold with no capital gains tax and those unrealised gains are being progressively sold down just in case some inconsiderate Govt decides to tax Super in pension mode!
There is a lot of sense in what has been written.

Simply put this aeticle is an apparent self serving marketing exercise for smsf review. Smsf by the nature of its purpose attracts a more focussed self serving, more nimble trustee attracted by lower fees as opposed to large aligned bureaucracies. Personal responsibility for ones future needs by way of investment choice and risk is no picnic but can show benefit for those who take it on. I am not particularly surprised it shows some advantage. It should.

You need to do your own homework to do smsf, but it not hard to out performance a industry fund . If your make good money then the investment strategy doesn't really matter . The government should stay out of your business if they are so good at make money ?? show us how it's done . Force people to invest in a market they mite not understand is foolish. Smsf cost are way lower than funds

Inflows from retired baby boomers (I am one) can partly be explained by the incentive to meet the work test by 40 hours of casual work in one month a year (e.g. HSC exam supervision), enabling $30k annual tax deductible concessional contributions. In my case, by selling shares held outside super, and (post aged pension age) meeting the work test, leveraging the tax rate arbitrage. This reduces the impact of compulsory super withdrawals by about 65%.

The work test was abolished in 2022. You can now make non-concessional contributions up to age 75 as long as your super balance does not exceed the TBC.

You must still meet the Work Test to claim a personal tax deduction for your Concessional Contribution. Your TBC plays no role in tax deductibility, unless this was changed in FY25, for which I have yet to lodge my ITR.

Jack is half right, up to age 67 you are eligible to make a personal contribution regardless of your employment arrangement. Your income can come from salary and wages, a personal business, investments, government pensions or allowances, super, partnership or trust distributions and a foreign source.
Over age 67 you then need to meet the work test.

SMSF don't have so many snouts in the trough

Yes that's why labour will make them harder to get . Your not feeding a union

As has been said in previous comments SMSF allocation to International equities is, I would argue, grossly understated. Just the simplest of analysis would show ( I’m using a few of our direct equity investments as an example) stocks like Auckland Airport, Reliance Worldwide, CSL et al are classified Australian equities but their business is all or largely offshore. Many funds, ETF’s fall in the same boat.

Even the platform managers classifications are sloppy at best, eg Netwealth.

It bothers me that in today’s world people who take responsibility for their own financial management to have some independence from either government or union run entities get demonised. Governments and unions in this country have an appalling record of good financial management….why would you not want to be responsible for your own wealth?

Graeme, a very good comment. My husband was in a Public Service Super Fund in Queensland, now merged into another large Fund, and they did a good job of losing money on us and still charging us fees. After leaving the Public Service and warily starting our own company, we took the bit between our teeth and set up an SMSF. It was right before the GFC and all the member owned equities we contributed "in specie" to that SMSF at the market value at the time, subsequently took a massive hit. We just grinned and bore it.....and many of them are still on our balance sheet with "red" in bold.....but, we do it all for the sake of being in charge ourselves, being masters of our own destiny and being as little as a burden on our economy as we can. No pension for us, no Aged Care subsidies, and happily so. Leave them for those in real need. But, please, please stop with the demonising of those of us who have worked up from nothing, never taken any handouts, and have no wish do so, just work within the rules.

Good on you June.

I am the same, had my own fund for 24 years and love it, no financial advisors, and collect nothing from the government in the way of pensions etc, quite happy to continue as long as they leave me alone, 82 this year , and still outperform the big funds

Well said Bill.

I was a member of the executive suite at one of the large industry funds for nearly a decade. Half way through my tenure I transferred almost all of my super assets into a SMSF leaving only a small amount to cover my group life premiums. As an executive one of my duties was to sign/counter sign off on fund expenditure. The amount of money we would spend on things that had nothing to do with improving member outcomes, yes including spend on sponsoring party related payments, subscriptions and promotions, was at times eye watering. And being an industry fund, we weren't the most cost efficient either. Certainly no where near the efficiencies achieved by the commercial super/wealth sector I had worked in earlier in my career (caveat - I exclude AMP from this because they're just hopeless - always been badly run pre and post demutualisation).
My small, insignificant SMSF runs at a MER of about 20bps because I use primarily ASX listed ETFs and I usually rate first or second quartile c.f. the large funds because I use the same asset allocation model but have lower operating costs.
I don't get any of the "tax advantages" mentioned by the author simply because there are none. As a finance professional of 40 years, I'm quite sure the tax regs do not materially distinguish between SMSFs and large collective funds. Despite everything else, Government tax policy has always focussed on achieving neutrality across different types of super vehicles and "products".
I'm also with you on your first point, I have about 50% to 60% of my fund assets invested in non domestic equities, fixed income, REITs and infra but all classified by Comsec and the fund accounting software I use as domestic equities because they are all ASX listed ETFs. Something the author has clearly overlooked.

Newsflash: Fund manager completely omits the impact of costs on investment returns!

Quelle Surprise!

There are quite a few things that professional fund managers do, that an SMSF investor does not have to do, that hurts investor returns:
1) Charge fees.
2) Have expensive admin. My SMSF runs at an MER of 4bp. Yes, 0.03%. Do the math on that vs an industry fund first charging 20bp in admin, then investing in underlying fund managers at another 70-130bp p.a in both fees and another layer of admin.
3) Hug the index for career risk reasons.
4) Turn stocks over.

As to tax advantages: when a professional and a retail investor playing under the same rules show better outcomes to the retail investor, its time for the professional to up their game.

"Fund manager completely omits the impact of costs on investment returns"

The annual fee on our SMSF was about 0.0165% of funds invested last time I looked-tell that to the fund managers that charge about 100x more so they can choke on their morning weeties.

Did the author ever consider:
1. SMSF's don't bear the excessive fees charged by managed funds?
2. SMSF's don't constantly trade their appreciated securities recognizing capital gains the way managed funds do?
3. SMSF's tend to invest to fund their retirement in AUD and avoid the currency risks incurred by managed funds?
4. Some SMSF's believe investing in Australia is the best way to improve the future for all Australians?

You saved me posting similar comments

Ditto for me, and I would also add that managed funds may not be as exposed to the proposed tax on unrealized gains precisely because they recognize those gains by constantly trading appreciated securities. In contrast by avoiding constant trades SMSFs carry more exposure to the proposed tax but this may also explain why our fearless treasurer is so determined to tax unrealized gains.

To the Author,
I think your first paragraph is an unfounded attack the majority of SMSF owners by a typical fund manager.
My take (only my unlearned observation) is that the majority of SMSF holders in Australia are successful members of society that have run their own small businesses, know how to read a P & L statement, know that to get ahead you have to earn more than you spend and have spent their life putting their own dollars to work, being productive and making a profit. They are taking responsibility for their own futures and could probably run a large industry fund better than some of the Union hacks who have a job for life.

There is no substitute for possessing high levels of financial literacy and discipline and SMSFs attract more than their fair share of owners who possess these traits as well as valuing control over their financial destiny and life in general. They balance risk/return carefully, adjust their investment strategy on the fly to take advantage of opportunities without the inertia that typically plagues bigger players (eg.our SMSF made large investments during the GFC and COVID downturns). Also given that many paid significant income tax during the accumulation stage (the top 1 per cent paid 18.3 per cent of all income tax revenue in 2023-24 ) ensuring that they pay no more tax in retirement than they are legally required is an important aspect of strategy.

Matt, it is possible to find APRA funds that do not have union members on the Board.

I had to check what I was reading.I thought it was Shakespeare's 'Much ado about nothing"
The emotive terms expose the direction from 'whenst' the writer is coming. The use of expressions such as:-
"free ride' 'unhealthy obsession' 'most glaring' tell a tale in itself.
In my view the article lacks any commitment to objectivity and is fundamentally flawed.
What is the purpose of such an article unless the starting brief is let's find ways to take down SMSF's

How interesting. My take was “Ned Kelly rides again - but unlike Robin Hood, legally takes from the poor to give to the rich”. Readers old enough to remember the shaky start to the introduction of SMSFs to the new superannuation and the stringent rules and cost involved, will recall that SMSFs were permitted primally as privately managed trusts to provide for retirement, not as vehicles for tax minimisation. Contributions were strictly regulated, though governance could have been better. Limited tax advantage and being in control of one’s affairs were attractive. The change in purpose of SMSFs has legally allowed the corruption of a good thing. Treasurer Chalmers, while I believe that cancelling imputation credits results in unfair double taxation, I applaud your attempts to correct the situation.

Tim, you have totally ignored ‘costs’.
The cost of running an SMSF are far lower for a member with a reasonable size account than for the same size account in a large fund as they charge a % of funds under management so the many many low value members get a subsidy from the high value members. Also their inefficiencies/ advertising and Trustee costs adds up to being a major cost all their members .

Agree that Tim has ignored 'costs'. Costs for our modest sized fund run at 0.67%, far less than the same allocation would cost with a Large Super fund.
Also the ATO's categorisation of investments by type can disguise what a fund invests in. For instance, money placed with an Australian managed fund does not pick up that the fund's investments are corporate bonds of overseas companies.
Neither does the categorisation pick up the overseas operations of Australian companies, e.g. Cochlear earns a huge percentage of its income from overseas, but an investment would appear in a smsf tax return as Australian shares.

Bruce, how would you put a "cost" on the amount of hours that a SMSF member spends managing their own portfolio? I know that if I had my $1M+ super in a SMSF (still in accumulation mode as <60yo) I would be spending a lot more of my own time in managing that portfolio, than I do at looking at unit price changes in my APRA fund.

Me and a mate both have super balances well above the $3m. He had gone SMSF, I had not. We compared costs last year and it was pretty much the same - few hundred dollars either way. But the brainspace involved wildly different.

Our SMSF accountant (eSuperfund) charges a fixed $1,499 to attend to all tax and accounting obligations including the audit fee for our SMSF. The same annual fee applies irrespective whether the SMSF has a balance of $1m or $10m. Compare that to industry superfunds that typically charge fees between 0.5% and 1.5% of the account balance annually ($15,000 -$150,000 at the higher end for the same examples).

I think this article is a beat up, a solution looking for a problem perhaps?
Everyone knows that franking credits add some % to ANY investor's returns - not just SMSF. Everyone also knows that APRA superfunds also receive franking credits but, as you suggest, they probably invest slightly (not significantly) less in domestic equities than SMSF. So what?
APRA funds also have large investments in bonds and unlisted (somewhat opaque) assets, much larger than SMSF. So what?
It's hardly a "tax dodge" to simply decide to invest more $ in assets that receive franking credits than someone else - that is a ridiculous assertion. You're not related to Bill Shorten are you?

We had an accountant classify 100% of a fully diversified managed account structure as 100% Australian equities. This not only mucks up the data with the ATO, the auditor claimed we were in breach of the investment strategy. We sent the real AA and the problem went away.

Missing some critical differences:

1. Franking credits - within a SMSF, 100% of Franking credits flow thru to the Fund. Within Industry and Retail funds they don't - there is an ATO sanctioned "haircut" applied to pooled funds. That is a big + in Pension mode.
2. The onshore bias works when the A$ appreciates vs the US$ as it has done and is doing. A decade or so ago, the AS$ and US$ were at parity or better for a while - just imagine if it happened again? All offshore investments would get smashed. {Not as though they they totally avoid offshore exposure - if you own BHP/CSL et al, it comes with a locally listed stock}
3. Retirees have actually figured out that virtually all their future "liabilities" are in fact in A$'s and that offshore investments, amount to a massive "mismatch" in "Assets vs Liabilities". Why add that currency risk? {Future F making same error}
4. SMSF's are dramatically cheaper to run as they can, if they are smart, totally avoid asset or platform based "percentage charges". Acc/Audit charges less than 10 bps?

I'm in an Industry Fund with Direct Share Investment option

I get all my Franking Credits

But you don’t own the shares. If you did, you would have to wait for the tax return at the end of the financial year. Your “franking credits” are paid at the same time as the dividend - paid by the fund, not the ATO.
Why? To encourage you to keep your super within the fund and not start a SMSF and so provide a continued source of fees.
You have all the benefits of share “ownership”, except they can be sold without your consent.

I thought this article was worth including in this week's edition. However, there are some questions around the data on SMSF asset allocation. Specifically, are ETFs with international exposure which are listed on the ASX treated as 'domestic equities' or 'international equities'? I suspect it may be the former though haven't seen any data to confirm or deny this. If anyone has information on this, please comment or email Firstlinks.

An answer to this would be the basis for a fuller assessment of SMSF performance.

Kind regards,

Your editor.

Anecdotal as it relates to our own fund only, so not data per se, but our fund invests 30% in an ASX listed LIC that invests solely in international equities. When it is listed in the annual SMSF return, it is categorised as domestic equities. In my opinion, this has been a major weakness in the ATO (and subsequent) reporting of SMSF diversification.

I agree that there is almost certainly a misclassification of ETFs (etc) as domestic, even when they hold international assets. I imagine that there is some research out there that might give at least a hint as to how to adjust for this in estimating SMSFs' exposure.

I don't know how much that would close the gap.

If there's still a big difference, so that the explanation is not asset class selection, must tax be the only reason for outperformance? What about asset selection within asset classes? It would be good to have an indication as to whether SMSF trustees have been good (or bad) stock pickers.

James, I suggest that Graham Hand answered the ETF domestic/international question quite clearly in his 17 July 2015 article, 'Let’s debunk this myth about SMSFs and global shares'. Though written in 2015, ETFs etc can still have a varying mix of domestic and international equities and its probably too difficult for the ATO to reflect this in their stats. So yes, I believe SMSF's hold a much greater proportion of international equities than acknowledged, and especially those paying for good advice. I wonder why the author of today's 'Are SMSFs getting too much of a free ride?' didn't include this possibility in his analysis. Perhaps because it would have tended to undermine his claim that 'The generosity of a zero-tax pension phase is an arrangement that is a uniquely Australian construct and given higher income households have higher superannuation balances it is also clearly regressive'? I would argue that a capped zero-tax pension phase has not been regressive, if it was successful in encouraging massive growth in fully self-funded retirement and increasing reductions in government outlays on old age pensions into the future.

The tax return for our SMSF has practically zero for direct foreign investments and we do not feel qualified to invest directly in other countries. However our strategic allocation is:
Strategy % ----- Current ------
Cash plus 9.0%
Other Fixed Interest 30-70 37.0%
Listed Property plus 0-20 6.5%
Infrastructure 2.5%
Australian Equities 10-30 23.6%
International Equities 10-30 21.4%

Our international investments are made through two managed funds, four ETFs, and two LICs. We also have shares in an international wealth manager but listed on the ASX. All of these are easily identified as purely international but there is no reporting that identifies this and I suspect many other SMSFs are in a similar position.

James:
The answer to your query can be found by an examination of the ATO's SMSF Annual Return Form and its related instructions. Those Annual Returns form the basis for the ATO's Quarterly SMSF Statistics publication, from which the author has doubtless derived his information.

Section H of the Annual Return requires each SMSF to analyse their assets into various specific categories, at Question 15. The instructions to the form make it very clear that "15a Australian managed Investments" comprise Australian-regulated entities that make subsequent investments on behalf of the SMSF. It doesn't question the geographic location of those investments. Thus both Domestic and International managed funds and ETFs would be reported on this line.

Further, the instructions to the form make it clear that "15d Overseas direct investments" is only to be used for the SMSF's direct investments that are located outside Australia.

So a SMSF that holds (say) Apple shares directly would report them as an Overseas direct investment. But if those same Apple shares were economically held via an Australian managed fund or ETF, then in the ATO's statistics, they are included within Australian managed investments.

Or put differently, the ATO's statistics, whilst doubtless accurately compiled, are entirely useless if one wants to understand SMSFs' asset allocations.

The ATO's materials are available at:
https://www.ato.gov.au/forms-and-instructions/self-managed-superannuation-fund-annual-return-2025-instructions/how-to-get-the-smsf-annual-return-2025#ato-GettheSMSFannualreturninstructions

Thanks SH2071, that's helpful.

James

Thank you SH2071. Which means that criticism of SMSFs as being insufficiently diversified into international equities is entirely erroneous and can, with these facts, be refuted.
So the next time another ill-informed fund manager, or jealous critic of SMSF success, falsely claims that SMSFs "have some peculiar attributes, the most glaring being the almost complete rejection of international assets in their asset allocations" they can be told that SMSF international investments are well covered by Australian domiciled ETFs and Australian shares that predominantly invest overseas.
IVV and VGS are very popular holdings within SMSFs, for good reason.
The author asks "How is it possible that individual or Mum and Dad investors achieved vastly better investment returns than professional Large Super investment teams?"
Other commentators on this forum perceptively show why this is not only possible - but probable.

James perhaps you could contact a few of the larger ETF providers, explain the context of the query and ask for a simple breakdown of holders of their ETFs and see what proportion the SMSF's holdings are actually domestic investments (asx shares) and what are international (ditto for fixed interest, infrastructure etc). I will not be surprised at all to see SMSF's actually hold significant international shares via ETF's. I do. Just look at the size of some of them like QUAL & VGS - you think there aren't a fair few SMSF's in there?

Steve,

Great point. I will ask.

James