Recently, Stockspot analysed the returns of the most popular managed funds invested in by SMSFs according to the Class Benchmark Survey.
We found that of the 1.1 million Australians who have an SMSF, 32% are invested in managed funds. Of the 20 most popular managed funds, 18 are actively managed.
The key takeaways from our research:
- Over half of the most popular active managed funds owned by SMSFs have underperformed Morningstar benchmarks in the past five years
- Over five years, the most popular funds beat the market by an average of only 0.90% p.a. before fees ($629m). Investors paid active managers 1.04% in fees p.a. ($731m). This left investors underwater by approximately $102m p.a.
- Two of the most popular active managed funds, Platinum and Winton, underperformed Morningstar benchmarks by 21% and 13% respectively.
Keep reading to find out more.
Disappointing returns for popular active managed funds
We found disappointing returns from over half of the most popular active managed funds, including Platinum International Fund and Winton Global Alpha, who have underperformed benchmarks by 13% to 21% over the past five years.
Our research shows how much variance there is in returns from managed funds (see table below), and that SMSFs are taking a huge gamble when they invest in popular managed funds rather than index ETFs.
Global share managed funds like Platinum International performed the worst compared to benchmarks over the five year period. Platinum earned around 25% over five years, but if an SMSF investor had invested in the passive Global 100 ETF over the same period, their returns would have been closer to 75%.
| Fund name | % of SMSFs with Managed Funds that hold this fund | Five year return to 30 June 2020 (p.a.%) | Return vs benchmark over five years (total%) | ICR (Fees p.a.) | Fund Size ($m) |
| Magellan Infrastructure Fund | 4.40% | 7.74 | 28.66 | 1.05% | $2,237 |
| Bennelong ex-20 Australian Equities Fund | 5.30% | 11.75 | 20.79 | 0.98% | $2,482 |
| RARE Infrastructure Value Fund – Unhedged | 4.40% | 5.74 | 16.94 | 1.28% | $763 |
| Platinum International Fund | 20.90% | 4.68 | -21.35 | 1.35% | $8,022 |
| Winton Global Alpha Fund | 7.70% | -1.24 | -13.73 | 2.04% | $1,243 |
| Macquarie Income Opportunities Fund | 6.50% | 2.63 | -13.68 | 0.51% | $3,190 |
Fig. 1. Best and worst performing: popular SMSF active managed funds (Five year performance)
$731 million in fees undercuts any returns made over benchmarks
The other discovery we made was the fees charged by active fund managers during this five year period. On average, the active funds we analysed made before-fee returns that were only 0.90% p.a over market benchmarks.
Unfortunately, this ‘excess’ amount – and then some – was retained by the funds, who kept an average of 1.04% p.a for themselves.
This means that investors paid active fund managers $731m in fees p.a over five years, despite the fact that these funds only beat the market by around $629m each year. This meant that any benefit of performing over benchmarks was lost in fees – plus a little extra.
Are active managed funds worth it for SMSFs?
What our analysis shows is that active fund managers seem to reap all of the benefits if they outperform the market. This means investors wear the risk and suffer if their fund underperforms but don’t partake in gains over benchmarks.
The other issue with active managed funds is that “star” fund managers of one period can very quickly become low-performing the next. An example is Platinum, who were a darling fund in the 1990s and early 2000s but had poor performance relative to market benchmarks over the last five years.
SMSFs and index funds
Active managed funds are lucky dip for SMSFs – there are risks of not getting any benefit when your fund outperforms, while bearing the brunt of any underperformance.
Active managed funds try and beat the market, but the other investing option for SMSFs is to invest a core part of their portfolio index ETFs. This can eliminate fund manager risk and the risk of underperformance.
