How SMSF investment performance is tracking.
Investment performance
In this report SMSF investment performance is an indicator of performance across the entire sector. It is not a direct comparison to APRA fund investment performance as the data inputs and methodology used are different.
The estimated SMSF return on assets (ROA) for the whole population, or total 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 in 2020–21 was 15.2%, dropping from 60.0% in 2019–20 and 24.6% in 2016–17.
- The proportion of funds with an ROA of greater than 5% was 71.5% in 2020–21, an increase from 16.8% in 2019–20 and 49.7% in 2016–17.
- In 2020–21 the ROA for the whole population (total ROA) was 18.2%, up from 1.0% in 2019–20 and 11.2% in 2016–17.
- In 2020–21 the median ROA for SMSFs was 12.9%, up from -1.5% in 2019–20, and 5.0% in 2016–17.
Graph 5: Return on assets for SMSFs, 2016–17 to 2020–21
Graph 6 below shows the ROA for SMSFs by percentile for the 2020–21 financial year. It shows the distribution of ROA across the population.
Graph 6: Return on assets for SMSFs by percentile, 2020–21
See table 23 and table 24 of the data tables.
SMSF expenses
In 2020–21:
- the average total expense ratio was 1.1% or $15,500, down 1% from $15,700 in 2019–20, and up 10% from $14,100 in 2016–17
- median total expenses were $8,600, up 3% from $8,300 in 2019–20, and up 19% from $7,200 in 2016–17
- SMSFs in retirement phase incurred lower average total expenses ($14,500) than funds solely in accumulation phase ($16,400)
- average operating expenses were $6,400, up from $6,200 in 2019–20, and $5,900 in 2016–17. The average operating expense ratios were 0.46%, 0.47% and 0.52% respectively.
- median operating expenses were $4,100, up from $3,900 in 2019–20 and up from $3,800 in 2016–17.
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 2020–21 in the:
- $1 to $50,000 asset range, the average total expense ratio was 18%, average expenses were $4,500 and median expenses were $2,100
- greater than $2 million asset range, the average total expense ratio was 0.6% but average expenses were $27,700 and median expenses were $16,000.
Graph 7: SMSF average and median expenses and total borrowings, 2016–17 to 2020–21
Interest expense within Australia has dropped from 2019–20 to 2020–21. This follows several years of steady growth due to the rise in SMSF investment in LRBAs. In 2020–21, 11.3% of SMSFs reported an LRBA, down slightly from 12.1% in 2019–20, and up from 9.6% in 2016–17.
Borrowings also decreased, from $25.2 billion in 2019–20 to $22.6 billion in 2020–21, leading to decreasing average and median interest expenses within Australia. In 2020–21 95% of borrowings were for LRBA purposes.
The following graphs show a breakdown of expenses reported by SMSFs by the asset range of the fund in 2020–21. The first graph shows that in general the average expense for each expense type rises as the size of the fund increases. A noticeable exception is overseas interest expenses and forestry managed investment scheme 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 interest expenses than larger funds.
Graph 8a: Average expense by expense type and asset range, 2020–21
Graph 8b: Median expense by expense type and asset range, 2020–21
See table 25, table 26 and table 27 of the data tables.
SMSF asset allocation
At 30 June 2021:
- SMSFs held 25% of their assets in indirect investments (trusts and managed investments)
- SMSFs held 47% of their assets in either Australian listed shares or cash and term deposits
- 75% of all SMSF assets are held in one of the following 5 investments: Australian listed shares, cash and term deposits, listed trusts, unlisted trusts, and non-residential real property.
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 9: SMSF asset allocation, 30 June 2021
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 65% of total SMSF assets. This reflects an increase of 2% from 2019–20 but is consistent with 2016–17.
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 2021:
- cash and term deposits were the sole asset held by 6% of SMSFs
- 8% of SMSFs held all their investments in one asset class, consistent with 2019–20 and down from 10% in 2016–17
- 46% of SMSFs with assets $50,000 or less held all their assets in one asset class, compared to less than 15% of SMSFs with assets over $500,000
- 40% of SMSFs held 50% or more of their assets in either cash and term deposits or listed shares
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 $166.9 billion in 2020–21, up from $163.0 billion in 2019–20 and $137.0 billion in 2016–17.
- Direct investment in non-residential real property grew by 15% from $64.7 billion in 2016–17 to $74.7 billion in 2020–21. Investment in 2019–20 was $73.1 billion.
- Residential property investment has risen over the past 5 years, increasing by 23% from $33.7 billion in 2016–17 to $41.6 billion in 2020–21. Investment in 2019–20 was $39.1 billion.
Overall SMSF investment in residential real property, both directly and through LRBAs, was $70.2 billion in 2020–21, representing 0.8% of the total Australian residential property market of $8,924.6 billion 9.
- In 2020–21, 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 as fund size grew, peaking at 11% of assets in the over $5 million to $10 million range, before dropping to 9% for funds with assets exceeding $50 million.
Graph 10: SMSF investment in real property, 2016–17 to 2020–21
See table 28 of the data tables.
9 6416.0 – Residential Property Price Indexes: Eight Capital Cities, June 2021, ABS, 14 September 2021SMSF borrowings
At 30 June 2021:
- 12% of SMSFs held total borrowings of $22.6 billion and equating to 3% of the total value of SMSF assets.
- The average value of total borrowings was $329,000, down from $346,000 in 2019–20 and $369,000 in 2016–17.
- The median value of total borrowings was $253,000, down from $260,000 in 2019–20 and $270,000 in 2016–17.
- The average value of borrowings for LRBA purposes was $333,000, down from $352,000 in 2019–20 and $380,000 in 2016–17.
Over the 5 years to 2020–21, on average 93% of SMSFs with borrowings were in accumulation phase, while 7% were in retirement phase.
See table 28 of the data tables.
Limited recourse borrowing arrangement (LRBA) assets
In 2020–21:
- The number of SMSFs reporting LRBAs was 11.3%, down from 12.1% in 2019–20 and 9.6% in 2016–17.
- SMSFs reported borrowings for LRBA purposes of $16.2 billion.
- LRBAs made up 6.3% of the total value of all SMSF assets, down from 7.4% in 2019–20 and up from 6.2% in 2016–17.
- Assets owned through LRBAs had grown to $52.9 billion, down from $53.0 billion 2019–20 and up from $40.4 billion in 2016–17.
- Of the $52.9 billion of assets held under LRBAs, 96% ($50.6 billion) is related to real property. This was split between residential ($28.7 billion or 54%) and non-residential real property ($22.0 billion or 42%).
- 85% of SMSFs with an LRBA reported holding one property, 9% reported holding 2 properties and 2% reported holding 3 or more properties. The remainder (4%) reported holding no properties.
Graph 11: Total LRBA assets and proportion of SMSFs reporting LRBAs, 2016–17 to 2020–21