Why larger super funds perform better

Peter Terlato 3 February 2017

Gold coins investment Australia counting

Diversification is the key to superior achievement.

A new research report has concluded self-managed super funds (SMSFs) with a balance of $200,000 or more are likelier to outperform smaller funds as a result of greater diversification opportunities.

SuperConcepts and the University of Adelaide's International Centre for Financial Services recently released their joint report, When size matters: A closer look at SMSF performance.

Data was gathered from more than 20,000 SMSFs between 2008/09 and 2014/15.

The research found larger SMSFs operate more effectively than smaller funds and enjoy superior fund characteristics, such as diversification and improved expense ratios.

Larger funds can be more productive in managing expenses. For example, the report shows when a fund reaches $550,000, expense ratios fall below 2% and diversification is tantamount to the largest funds.

SMSFs with balances under $200,000 not only have higher fund expense ratios but also suffer as a result of their inability to achieve sufficient levels of investment diversity.

The latest data shows Australian superannuation funds total assets for financial year 2015/16 comprised almost $2.1 trillion, of which almost one third was held in self-managed funds.

Last August, we reported SMSFs seeking capital growth were diversifying their investment options.

SMSFs offer control over how and where you invest your money, but they have their risks too.

If you're looking to switch funds, consolidate your super, better manage your self-employed savings or take out income protection for your nest egg, it's best to compare options and make the right decision.

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