POWERED BY MOMENTUM MEDIA
Fixing implementation leakages would boost returns
Superannuation funds have an opportunity to control investment taxes and transaction costs instead of waiting for their portfolio to get their bets right, according to Parametric.
According to research by Parametric, super funds should respond to investment challenges such as low yield, scarce investment alpha, and a bear market by “controlling what you can control”.
Parametric managing director of research in Australia, Raewyn Williams, said that confusion about the value of managing investment taxes and transaction costs could be a factor in these areas of implementation leakage being overlook.
“We believe a good conservative guide to the value of an after-tax equity management approach, net of all fees and costs, is around 59 basis points annually,” Williams said.
“For equity trading costs, it really depends. But for a large-cap Australian equity portfolio, every $100,000 of equity trades could realistically cost a superannuation fund as much as $2,380 or as little as $420.
We do know that few funds are getting execution-only ‘best price’ on their trades and advocate for funds to receive transaction cost reporting so they can start a discussion on this issue.
The research said it was illogical to focus on striping out fees when retiree fund members would benefit almost twice as much from their funds cleaning up implementation leakages.
“These controllable costs are positively correlated with portfolio changes. The more changes your fund is planning, the more you are incentivised to put an efficient implementation platform in place before you instigate the changes,” Williams said.
“I understand the temptation to put off new ideas until the big changes are delivered, but superannuation funds with a busy change program should consider prioritising the initiatives that will make the rest of their changes easier to implement and less costly to members.”
Recommended for you
Super funds had a “tremendous month” in November, according to new data.
Australia faces a decade of deficits, with the sum of deficits over the next four years expected to overshoot forecasts by $21.8 billion.
APRA has raised an alarm about gaps in how superannuation trustees are managing the risks associated with unlisted assets, after releasing the findings of its latest review.
Compared to how funds were allocated to March this year, industry super funds have slightly decreased their allocation to infrastructure in the six months to September – dropping from 11 per cent to 10.6 per cent, according to the latest APRA data.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.73 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
30.15 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.71 3 y p.a(%)
