SuperGuard 360 SMSF performance indices

This was the second month in a row in which the Reference Index outperformed the Default Index. The Default Index is based on the returns from default MySuper products.

Over three years the returns of the reference index and the default index were similar. The Reference Indexed returned 7.4%pa compared with the Default Index return of 7.3%pa. Over five years the Default Index has a significant edge of 1.1%pa (8.8% pa versus 7.7% pa).

Three quarters of all SMSFs are small having assets less than $1 million. These funds, according to official ATO figures, have much higher weightings to cash and lower weightings to equities than larger higher performing SMSFs which hold the majority of SMSF assets.

This means that the majority of SMSF members are in funds likely to achieve lower than ideal investment outcomes. To ensure their retirement savings last as long as they do, SMSF members should review the amount they pay in fees and benchmark their portfolio to ensure it is achieving the returns they are expecting. If they are achieving lower investment returns than the benchmark it is important they understand why.

June saw a sharp disparity in equity returns between the developed world and emerging markets. The MSCI World Index, which covers developed markets, returned 2.4% in Australian dollars while the MSCI Emerging Markets Index lost 1.8% in Australian dollar terms.

Australia’s S&P/ASX 200 Index had one of the highest monthly returns in June with 3.3%.

Over 12 months the results between developed and emerging markets were more in line, with the developed markets returning 16.0%, Australia returning 13.0% and emerging markets returning 12.7%.

The main reason for the June disparity between the developed world and emerging markets was the escalating trade war between the US and China, which finally spilled over into the Chinese stockmarket, taking the China A Shares Index 11.6% lower. Over 12 months China A Shares have lost 9.3%.

It is worth commenting on the divergence of returns between the Resources and Industrials sectors of the Australian sharemarket. While the June returns were the same (3.3%), the 12 months returns were wildly different. Resource stocks are cyclical and in this case higher expected world growth helped Resources gain 40.7% over 12 months compared with Industrials returns 7.8%.

Australian listed property gained 2.2% off the back of a 2-month decline in longer term bond yields, taking its annual return to 13.0%

Bond investors also had a positive month. The Bloomberg Ausbond Composite Index returned 0.5% for the month and the Bloomberg Barclays Global Aggregate Index returned 0.2%. The annual returns were 3.1% and 1.9% respectively. The decline of the Australian dollar against the USD continued, losing 2.4% and ending at 74 US cents compared with 76 cents at the beginning of the month.

SuperGuard 360 produces two performance indices useful for self managed superannuation fund (SMSF) investors, being trustee members of SMSFs:

SG360 SMSF reference index: This index describes the post-fee investment return a SMSF trustee would receive in their account if they invested passively using the asset allocation represented by SMSF asset distribution published by the Australian Taxation Office.

SG360 default index This index describes the post-fee post-tax investment return a SMSF investor would have achieved if they invested in the same way the typical Australian Prudential Regulation Authority (APRA) regulated MySuper product invests.

The generalised asset allocation used in each index is shown in the chart on page 2. Generally speaking SMSFs have a higher weighting to property than do MySuper options and a lower weighting to equities in general and international equities in particular. The index is reweighted at the beginning of each financial year to reflect changes in SMSF asset allocation.

The SG360 SMSF Reference Index is derived by the following capital market indices:

· Australian shares S&P ASX 300 Accumulation Index

· International shares MSCI Global Shares AUD Index

· Property Financial Standard Direct Property Index

· Fixed interest Bloomberg AusBond Composite 0+Yrs Index

· Cash RBA Online Saving Account for $10k Index

· Other Rainmaker Average Wholesale Balanced Index

SuperGuard 360 indices are available to be used freely by investors, researchers, financial institution or media organisations so long as due attribution is given to SuperGuard 360 and Rainmaker Information.

The index remains the property of Rainmaker Information and its group of companies.

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