Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 207

Does DIY super make sense?

The benefits of investing through an SMSF include control, cost efficiency, tax management and flexibility but issues such as underperformance and viability due to size should also to be considered.

The massive inflows into the sector have meant that SMSFs are nearly 30% or $654 billion of total superannuation assets of $2.2 trillion. Is the increasing interest in doing-it-yourself (DIY) justifiable?

Size of SMSFs matter

According to ATO data, the APRA-regulated large institutional funds (including retail and industry funds) have outperformed SMSFs in seven out of 10 years to 2016. APRA funds’ compound average annual net return (after fees) over 10 years is in line with SMSFs, but higher over five years, as shown below. The outperformance of SMSF’s during the financial crisis years (2008 and 2009) helped support returns over 10 years, but once that outperformance disappeared, the APRA funds have done better. But, a statement in APRA’s Annual Superannuation Bulletin that in their calculations “expenses are generally understated”, suggests that APRA fund returns’ may be inflated.

According to data from a report by SMSF Centre of Excellence, SMSFs holding over $1 million in assets were the best performers over seven years. Smaller SMSFs (under $1 million), retail funds and industry funds did not do as well as larger SMSFs.

Net returns of SMSFs and large funds over 10 years

Assets are categorised differently

There are different sources of SMSF statistics. The ATO compiles the SMSF statistical data from SMSF tax returns, but some sectors are not accurately represented including property and international shares.

Last year I wrote about the fact that almost a quarter of SMSF portfolios are in property (see ‘Property takes one in four SMSF dollars’ (paywall) in The Australian newspaper). As the ATO makes the assumption that ‘assets in trusts are treated as though half is invested in equities and half in property’, then up to half of the 14% allocation to unlisted and listed trusts may be invested in property trusts (listed and unlisted). Additionally, there is the increasing allocation to “limited recourse borrowings” supported by the buying of investment properties. However, these numbers include business real property where professionals such as doctors and dentists sell their premises to their SMSFs and rent them to the business, rather than residential real estate.

In the case of international shares, Graham Hand from Cuffelinks found out from the ATO that there is likely to be international shares allocations held by ‘Listed trusts’ and ‘Unlisted trusts’, as well as ‘Other managed investments’ categories. These would substantially increase the low weighting to international shares that is reported.

SuperConcept’s ‘SMSF Investment Patterns Survey’, which covers approximately 2,750 funds representing over $3 billion in super, provides SMSF asset allocation data, which may be closer to what SMSFs are really doing, as shown below. SuperConcept’s inclusion of hybrid securities as fixed interest is debatable. Hybrids may pay a fixed interest-like return, but the securities also deliver downside risk rather than upside reward. During a market correction, the behaviour is more like shares, albeit with lower volatility than the underlying shares (see my article in Cuffelinks). So, more realistically SMSFs are most likely holding lower levels of fixed interest and higher levels of Australian equities than SuperConcepts’ data. Their clientele also tends to be ‘advised’, with greater use of managed funds than the overall SMSF population.

According to ‘Class SMSF Benchmark Report’ dated March 2016, more than 40% of Exchange Trade Funds (ETFs) or $11 billion of the $27 billion ETF market, is held by SMSFs. Some of the reported Australian equity allocation held by SMSFs is really in international equity ETFs or managed investment trusts to gain international equity exposure. If SMSFs are investing in ETFs for international exposure, the allocation to Australian shares is not as top heavy as has been believed. The same could apply to other asset classes such as fixed interest.

Asset allocation of SMSF and a balanced (Industry) fund as at June 2016

SMSF or APRA fund?

Are members of SMSFs better off where they are or should they return to an APRA fund? Whether or not the SMSF is meeting the members’ expectations may depend on why the fund was initially set up.

During the GFC, many APRA funds fell heavily, which may have encouraged the setting up of SMSFs, especially post-crisis. But SMSFs have their own idiosyncrasies including a home country bias to Australian equities, due to their familiarity, higher expectations of return, currency and costs.

Also, the allocation to cash and term deposits, despite record low interest rates, continues to be high compared with APRA funds. Around the time of the GFC in 2008, ATO data shows cash levels of SMSFs were around 29% and Australian equities 31%. Although the levels of cash were conservative, the high weighting to equities led to negative returns not to the extent of APRA funds.

Fees matter

The fees paid by SMSFs influence their returns over time. SMSFs with larger balances (over $1 million) are likely to be paying a relatively lower fee due to the fixed cost payable by all SMSFs. The average expense ratio according to 2015 ATO data for funds between $1 million and $2 million is under 1%, while smaller funds with less than $500,000 may be paying closer to 2.5%. Larger funds also have the advantage of economies of scale, enabling access to wholesale investment products with lower fees. A complete administrative package for an SMSF with many investments should cost less than $5,000 a year, which is only 0.5% on $1 million and 0.25% on $2 million.

If not for the years of 2008 and 2009, SMSF long-term performance might have been less attractive. A standout feature of SMSFs’ asset allocation is essentially the split between three asset classes: cash, equity and property. Nearly 40% of SMSF members are over the age of 60 and transitioning to retirement or in retirement, which may support the need for liquidity in the form of cash for capital stability and franked dividends on Australian equities for income generation.


Rosemary Steinfort is a Research Manager with DirectMoney. This article is general information and does not address the circumstances of any individual.


August 05, 2017

A complete administrative package for an SMSF with many investments can easily cost less than $1,000 a year.

Wayne Wanders
June 24, 2017

The ATO data on the average expense ratios of SMSF's is skewed by the fact that the ATO includes members insurance premiums as part of the expenses of a SMSF, when the data compiled for APRA funds does not. This is not really an expense of running the fund and should not be included in the expense and return ratios (especially as APRA funds use this data to say how great they are compared to SMSF's_

This also impacts on fund size reporting As insurance is not related to fund size so for smaller finds the average expense ratio reported by the ATO with similar insurance coverage to larger funds looks worse.

The sooner
1. the ATO reports SMSF fund returns correctly,
2. retail and super funds quote returns after all the admin and other fees they charge which are outside of the reported returns
the better informed all interested parties will be and the reality of what returns SMSF's generate will be available for everyone.
Also FYI - have had a SMSF for 17 years and do have LRBA property as well

June 22, 2017

Clearly SMSFs are not suitable for everyone, and I would probably agree (anecdotally) that many people who do have them probably shouldn't have, but that's another story.
I can only speak from my own experience. I've been in an SMSF for 8 completed FYs (this is 9th) and my compound annual growth rate (after fees) is 14% pa since FY10, or 9.8% pa from FY09. I'm fairly happy with that, although I don't think I will be shooting the lights out TFY, and will be slightly under market I suspect.
For clarity, the fund is $1.4m, in accumulation phase, MER is 0.27% pa, and asset mix is around 20% cash, 15% int shares/LICs and 65% domestic shares/LICs. The fund is self directed (ie. no investment or financial advice).

June 22, 2017

One massive advantage I have had with my SMSF is that I have been able to change the amount of funds I have in pension phase almost instantly without fuss, just so long as I document what I'm doing.
Try doing this in an APRA fund and see the rigmarole you have to go through. I did it once with a major industry fund some years ago (before my SMSF) and I couldn't believe the convoluted process involved.

Alternate view
June 23, 2017

Things have changed, it is now very easy to do this in an industry fund.

June 22, 2017

Using aggregate data on SMSF returns from ATO is probably highly skewed by the bulk of money in a very small proportion of very large funds. does this use median or mean returns? Will make a huge difference.


Leave a Comment:



Six advantages of an SMSF

This week's trending subject is: SMSF

Minister Jane Hume on SMSFs and superannuation reform


Most viewed in recent weeks

Unexpected results in our retirement income survey

Who knew? With some surprise results, the Government is on unexpected firm ground in asking people to draw on all their assets in retirement, although the comments show what feisty and informed readers we have.

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Six COVID opportunist stocks prospering in adversity

Some high-quality companies have emerged even stronger since the onset of COVID and are well placed for outperformance. We call these the ‘COVID Opportunists’ as they are now dominating their specific sectors.

Latest Updates


10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?


Sean Fenton on marching to your own investment tune

Is it more difficult to find stocks to short in a rising market? What impact has central bank dominance had over stock selection? How do you combine income and growth in a portfolio? Where are the opportunities?


D’oh! DDO rules turn some funds into a punching bag

The Design and Distribution Obligations (DDO) come into effect in two weeks. They will change the way banks promote products, force some small funds to close to new members and push issues into the listed space.


Dividends, disruption and star performers in FY21 wrap

Company results in FY21 were generally good with some standout results from those thriving in tough conditions. We highlight the companies that delivered some of the best results and our future  expectations.

Fixed interest

Coles no longer happy with the status quo

It used to be Down, Down for prices but the new status quo is Down Down for emissions. Until now, the realm of ESG has been mainly fund managers as 'responsible investors', but companies are now pushing credentials.

Investment strategies

Seven factors driving growth in Managed Accounts

As Managed Accounts surge through $100 billion for the first time, the line between retail, wholesale and institutional capabilities and portfolios continues to blur. Lower costs help with best interest duties.


Reader Survey: home values in age pension asset test

Read our article on the family home in the age pension test, with the RBA Governor putting the onus on social security to address house prices and the OECD calling out wealthy pensioners. What is your view?



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.