Issue 8: Understanding benchmarks for managed funds in your SMSF

February 2020

Over the last few issues, we’ve talked about building portfolios and a little while back talked of understanding some of the measures of performance in your SMSF so you can benchmark your own performance. But what about benchmarking the performance of the underlying investments you choose in your SMSF?

Many SMSF trustees with exposure to the investments available on ASX, will consider the performance of their underlying investments against a benchmark index such as those reported daily on TV or in the press – S&P/ASX 200 or All Ords which are price indexes. These measures the daily price movements of each constituent in proportion to its weighting, presenting a total outcome for those stocks. If it’s up, investors may feel buoyed by the fact that so too is their portfolio.

However, the growing number of SMSF trustees choosing to use ASX managed funds, such as LICs, LITs or ETFs, may be surprised to learn that these are not included in indexes, as this would amount to duplication of some or all of the underlying constituents of the index.

So too, if your SMSF strategy is set more towards the generation of income and franking, price indexes do not take this into consideration as they are more orientated to measuring growth and income strategies may be more focused on capital preservation and providing yield rather than growth.

So, let’s take a look at what are some of the benchmarks that could be used by fund managers to measure performance.

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Ian Irvine – Guest Contributor

Ian has been a keen investor for over 40 years and can draw on his experiences from both investing on his own behalf and also having worked in financial services for more than 30 years. Over this time, he has seen many changes that impact investors’ attitudes to in what and how they invest.

He started his career in what is now referred to as fast moving consumer goods (FMCG) or grocery, working for an Australian margarine manufacturer. In 1986, he was recruited to Westpac around the time of deregulation of the sector, where he spent 10 years before taking a role at AMP and then with ASX for 14 years up to the end of 2017. He continues to be involved with ASX; working on their educational programs.

In 1996, he and his wife established their own SMSF and again the experience and lessons learned regarding managing an SMSF over the years have provided him with many insights and ideas. He enjoys sharing these with others where these are helpful and always suggest that if an investor or SMSF trustee is unsure, that they should seek appropriate advice from a licenced professional.

Ian holds a B. Com (UNSW), and lives in Sydney and enjoys travelling to and meeting investors and SMSF trustee at the educational events with which he has involvement with from time to time.