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Investment performance
SMSF performance

Investment performance measurement

John Hewison
Founder and Director
13 Mar 2018

I recently had clients come to me querying the performance of their self-managed-super-fund (SMSF). They had downloaded superannuation survey results from the internet and compared with the apparent performance of their super fund over 12 months using “Balanced Fund” options as the basis for comparison.

I explained that such comparisons were dangerous as the definition of “Balanced” differed between providers and often contained up to 80% growth assets. I also explained that the fund objectives were important in analysing returns as, in this case, reliable income was the priority. Also, comparing performance against a non-pension paying super fund is not appropriate as the compounded earnings factor comes into play.

I undertook to carry out further research for this client to clarify the position for them.  I discovered that the realistic asset allocation comparison of the funds surveyed was “Conservative” or “Conservative Balanced” and the general asset allocation of “Balanced” funds was indeed much more aggressive and not income oriented.

Having made the comparison between my clients’ performance and a sample of five major industry funds surveyed over a period of five years I was able to clearly demonstrate the following outcomes:

  • Our clients’ fund considerably outperformed the comparison funds
  • Our clients’ average income rate was 5.9% per annum in a period of historically low interest rates
  • There was considerable unrecognised growth potential within our clients’ portfolio

The purpose of this blog is not to brag about results. It is to illustrate the importance of applying appropriate and accurate measurement of fund performance.

We are all individuals with different needs and objectives, and with different attitudes to risk. The priority of any financial or SMSF strategy is to focus on specific objectives – short, medium and long term. Then it is up to the individual or their professional financial adviser to design a strategy that can achieve those objectives.  After this it is a matter of assessing the perceived risk associated with the strategy to ensure that it is acceptable to the individual.

The measurement of the investment strategy should then be based on the progressive achievement of the stated objectives ongoing with adjustment for lifestyle changes as they occur.

Making short term, snapshot judgements based on inappropriate comparisons is a recipe for poor decision making and potential for failure. That is not to say that comparisons between funds should not be made but those comparisons must be made against portfolios of similar asset allocations and objective outcomes i.e. pension funding or asset accumulation.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.