Investment profile

Investment performance

The estimated SMSF return on assets (ROA) continues to show a direct relationship to SMSF size. Generally, the larger the SMSF asset holding, the higher the ROA.

• The proportion of SMSFs recording a zero or negative ROA remained steady from 2016–17 to 2017–18 at 24%. The proportion of funds with an ROA of greater than 5% dropped from 50% in 2016–17 to 44% in 2017–18.
• In 2017–18 the average ROA for SMSFs was 7.5%, down from 10.2% in 2016–17. This is consistent with the positive 8.5% investment performance by APRA-regulated funds and the trend of positive returns over the five years to 2017–18.9
• Over the five years to 2017–18 most SMSFs recorded a positive ROA (76% in 2017–18).

Graph 5: Average returns for SMSFs and APRA-regulated funds, 2013–14 to 2017–18

See table 23 and table 24 of the data tables.

SMSF expenses

Changes from 2016–17

This year we have provided more detailed data in the form of new and updated expense tables. This required some minor terminology updates to better describe categories of data.

• 'Investment expense' now only refers to amounts at labels I1 and I2 of the SMSF annual return.
• 'Administrative and operating expense' has been renamed 'Operating expense'. Its components of approved auditor fee, management and administration expenses, other amounts and SMSF supervisory levy remain unchanged.
• ‘Management and administrative expenses’ therefore now only refers to amounts at labels J1 and J2 of the SMSF annual return.
• New and updated tables contained in table 25:    
  • average and median total expenses for the 2014 to 2018 financial years
  • average and median total expenses by SMSF asset range for the 2014 to 2018 financial years
  • average and median operating expenses for the 2014 to 2018 financial years
  • average and median expenses by expense type for the 2014 to 2018 financial years
  • average and median expenses by expense type and SMSF asset range for the 2018 financial year, including the number of SMSFs reporting expenses at that label.
   

SMSF expenses

Average total expense ratios are provided to show, at the whole of SMSF sector level, the percentage of assets required to run a fund. This year we have also published new tables that improve the visibility of expenses reported on the SMSF annual return, grouped by asset ranges.

In 2017–18:

• the average total expense ratio was 1.19% or $14,900, up 32% from $11,300 in 2013–14
• median total expenses increased 39% from $5,600 in 2013–14 to $7,700
• SMSFs in retirement phase incurred lower average total expenses ($14,200) than funds solely in accumulation phase ($15,400)
• average operating expenses were $6,152, up from $5,557 in 2013–14. The average operating expense ratio dropped over the same period from 0.52% to 0.49%.

While the average total expense ratio is highest for lower balance SMSFs, the total dollar value of average and median expenses increased as fund size increased. For example, in 2017–18:

• in the $1 to $50,000 asset range the average total expense ratio was 15.37%, average expenses were $3,800 and median expenses were $1,900
• in the greater than $2 million asset range the average total expense ratio was 0.69% but average expenses were $29,500 and median expenses were $15,800.

Graph 6: SMSF average and median expenses and total borrowings, 2013–14 to 2017–18

Interest expense within Australia continues to rise as the level of SMSF investment in LRBAs grows. More than 10% of SMSFs reported an LRBA in 2017–18, up from 5.7% in 2013–14. Borrowings also grew as a result of the increased investment in LRBAs, from $13.7 billion in 2013–14 to $22.8 billion in 2017–18, leading to increasing average and median interest expenses.

The following graphs show a breakdown of expenses reported by SMSFs by the asset range of the fund in 2017–18. The first graph shows that in general the average expense for each expense type rises as the size of the fund increases. The exception is overseas interest expenses due to the small population reporting expenses at this label. The second graph shows a similar trend for median expenses except for interest (both Australian and overseas), where SMSFs with balances up to $1 million have higher median expenses than larger funds.

Graph 7a: Average expense by expense type and asset range, 2017–18

Graph 7b: Median expense by expense type and asset range, 2017–18

See table 25, table 26 and table 27 of the data tables.

SMSF asset allocation

At 30 June 2018:

• SMSFs held 22% of their assets in indirect investments (trusts and managed investments)
• SMSFs held 51% of their assets in either Australian listed shares or cash and term deposits
• 78% of all SMSFs held one of the following five investments: Australian listed shares, cash and term deposits, unlisted trusts, non-residential real property and LRBA assets.

As an SMSF’s total assets increased, the proportion of assets held in cash and term deposits and 'other assets' tended to fall significantly while the proportion of assets held in trusts, LRBAs and non-residential property tended to increase.

Graph 8: SMSF asset allocation, 30 June 2018

SMSFs in retirement phase had very similar asset allocations to SMSFs in accumulation phase. The only noticeable differences were that SMSFs in retirement phase tended to favour listed shares, while accumulation phase funds held a greater proportion in LRBAs.

Funds in retirement phase held 64% of total SMSF assets. This reflects a small downward trend, down one percentage point from 2016–17 and five percentage points over the five years.

See table 28, table 29 and table 30 of the data tables.

Diversification

Generally, smaller SMSFs have less investment diversification than larger SMSFs. At 30 June 2018:

• 9% of SMSFs held all their investments in one asset class, down from 12% in 2013–14
• 41% of SMSFs with assets of less than $50,000 held all their assets in one asset class, compared to less than 7% of SMSFs with assets over $500,000
• 46% of SMSFs held 50% or more of their assets in either cash and term deposits or listed shares
• cash and term deposits were the sole asset held by 8% of SMSFs.

See table 31, table 32, table 33 and table 34 of the data tables.

Property investment

The growth in the value of property held by SMSFs is attributed to both new investment and the rising value of Australian real property. SMSFs invest in real property both directly and through LRBAs.

• Total SMSF investment in real property has grown to $145.1 billion in 2017–18, up from $93.5 billion in 2013–14.
• Direct investment in non-residential real property grew by 12% from $60.3 billion in 2013–14 to $67.3 billion in 2017–18.
• Residential property investment has risen rapidly over the past five years, increasing by 81% from $20.0 billion in 2013–14 to $36.2 billion in 2017–18.
• Overall SMSF investment in residential real property, both directly and through LRBAs, was $58.0 billion in 2017–18, representing 0.84% of the total Australian residential property market of $6,927 billion10.
• In 2017–18, residential property investment was highest in the $200,000 to $2 million range, where 6% of SMSF assets are invested in this asset type.
• In contrast, investment in non-residential real property increased with each asset range, peaking at 16% of assets in the $50 million to $100 million range.

Graph 9: SMSF investment in real property, 2013–14 to 2017–18

See table 28 of the data tables.

SMSF borrowings

At 30 June 2018:

• 11% of SMSFs held total borrowings of $22.8 billion, representing 3% of total SMSF assets
• the average value of total borrowings was $361,000, down from $370,000 the previous year
• 92% of the total value of borrowings reported by SMSFs was for LRBA assets. The average value of borrowings for LRBA purposes was $370,000, down from $382,000 the previous year.

Over the five years to 2017–18, on average 89% of SMSFs with borrowings were in accumulation phase, while 11% were in retirement phase.

See table 28 of the data tables.

Limited recourse borrowing arrangement (LRBA) assets

Borrowings for LRBA purposes are now reported on the SMSF annual return. The number of SMSFs reporting LRBAs has almost doubled over the five years to 2017–18, with over 10% of SMSFs now reporting investments through an LRBA.

In 2018:

• SMSFs reported borrowings for LRBA purposes of $19.3 billion
• 10.2% of the SMSF population reported having an LRBA, up from 9.5% in the previous year and almost doubling from 5.7% in 2013–14
• assets owned through LRBAs had grown to $43.4 billion (up from $15.5 billion in 2013–14), representing 5.9% of all SMSF assets (up from 2.9% in 2013–14)
• of the $43.4 billion held under LRBAs, 96% ($41.6 billion) is in real property. This was split between residential ($21.8 billion or 50%) and non-residential real property ($19.8 billion or 46%).

Graph 10: Total LRBA assets and proportion of SMSFs reporting LRBAs, 2013–14 to 2017–18

See table 28 and table 29 of the data tables.

Footnotes

⁹ APRA, Annual Superannuation Bulletin, June 2017, table 9.

¹⁰ 6416.0 – Residential Property Price Indexes: Eight Capital Cities, June 2018, ABS, 18 September 2018