SMSF Returns

lenny454 · 9 July 2014

Thanks for starting this thread, Craft. It's really great to see the returns that you have been able to achieve.

My two friends and I started our SMSF a couple of years ago with esuperfund but have been very lazy in our investments. However, we have finally got our act together and have started investing our cash.

We initially tried to get a loan to purchase a property but I moved overseas on a volunteer assignment and the bank would not lend to us for this reason. Most bank employees that I spoke to had not even heard of SMSFs and didn't know they could buy property.

I have been investing in both the Australian and US stock markets for a while and have started researching potential companies for the SMSF.

Thanks again for this thread and I hope you continue posting updates and what you are invested in.

sydboy007 · 16 July 2014

I'd be interested to know what MER people are getting with their funds.

I was trying to get as complete a picture as I could so included all the basic fees like auditing / ATO / ASIC / brokerage costs.

Then I added in the MER from the ETFs / LICs I've got.

Pretty much assumed cash, hybrids and direct shares are costless.

I came up with 0.93% (just over $1800), where roughly 60% of that was just the auditing / ATO / ASIC

It's higher than I thought it would be, but with such a high "fixed" component it should come down as my balance grows.

craft · 18 January 2015

sydboy007 said:
I'd be interested to know what MER people are getting with their funds.

I was trying to get as complete a picture as I could so included all the basic fees like auditing / ATO / ASIC / brokerage costs.

Then I added in the MER from the ETFs / LICs I've got.

Pretty much assumed cash, hybrids and direct shares are costless.

I came up with 0.93% (just over $1800), where roughly 60% of that was just the auditing / ATO / ASIC

It's higher than I thought it would be, but with such a high "fixed" component it should come down as my balance grows.

With costs being generally fixed on a SMSF the expense ratio for a fund holding direct shares is dependent on fund size.

My total expense ratio for software, admin, audit, brokerage etc is below .05% which is less then the lowest ETF I know of.

craft · 18 January 2015

craft said:
Is anybody using or familiar with the new simplefund 360 trustee edition administration software?

My renewal for simplefund desktop is due and it looks worthwhile migrating to the new cloud based version, just wondering if anybody has already made the move and if there was any hiccups.

Or is anybody using the client access version of simplefund 360 via their SMSF administrators? If so what are your thoughts?

Finally stoped procrastinating and did the books in Simplefund 360. What a heap of Crap!!! at least in comparison to the original desktop version.

In 360's defence - I was never going to enjoy the learning curve of a new system and the automation problems that caused me so much drama's doing it as a batch approach shouldn't cause the same issue on an ongoing basis.

Overall I really don't think they had this product sorted on launch (or even yet). Interesting first hand experience of the difficulties that software companies face and how they can shoot themselves in the foot and Peeve their customers off no end.

Julia · 18 January 2015

craft said:
With costs being generally fixed on a SMSF the expense ratio for a fund holding direct shares is dependent on fund size.

Can you clarify what you mean here? When shopping for quotes from accountants I found a huge variation: some simply charged % of fund value, regardless of activity, so you could have a client with $3 million mostly in cash, plus a couple of long term holds of say BHP, CBA, no trades, who could be charged 1% or more. That would be a ridiculously high bill for minimal work.

At the other end of the scale quite small balance but large number of trades, therefore more work for the accountant, and charged on an hourly basis.

My total expense ratio for software, admin, audit, brokerage etc is below .05% which is less then the lowest ETF I know of.

Mine also.

tech/a · 18 January 2015

You can't really trade an SMSF
Your only allowed 50 trades a year I think.

Julia · 18 January 2015

tech/a said:
You can't really trade an SMSF
Your only allowed 50 trades a year I think.

A SMSF is just another vehicle in which to hold assets in a tax advantaged environment. I don't know how many people with SMSFs would actually want to engage in multiple short period trades, but my accountant has never placed any limit on number of trades or warned me against exceeding a given number. The only very clear restriction I'm aware of is that the fund must be operated for the sole purpose of providing funds in retirement. That's a pretty broad brief.

tech/a · 18 January 2015

Similar to mine.
But won't allow intraday futures
Which I'd like the tax advantage.

But if I'm at 50 trades in a portfolio I'm sure
Going to keep selling if I thought it was in m best interest.
Not really self managed other wise.

McLovin · 18 January 2015

tech/a]Similar to mine. But won't allow intraday futures Which I'd like the tax advantage.[/QUOTE] Why not? The regulations allow derivatives trading as long as few bits and pieces are in place. [QUOTE=Julia said:
A SMSF is just another vehicle in which to hold assets in a tax advantaged environment. I don't know how many people with SMSFs would actually want to engage in multiple short period trades, but my accountant has never placed any limit on number of trades or warned me against exceeding a given number. The only very clear restriction I'm aware of is that the fund must be operated for the sole purpose of providing funds in retirement. That's a pretty broad brief.

Yes, that's right, and there's no restriction to carrying on a business inside an SMSF, including share trading, provided the SPT is maintained (this stops small business owners from putting their business in their SMSF).

craft · 18 January 2015

McLovin said:
Why not? The regulations allow derivatives trading as long as few bits and pieces are in place.

Yes, that's right, and there's no restriction to carrying on a business inside an SMSF, including share trading, provided the SPT is maintained (this stops small business owners from putting their business in their SMSF).

That is as I understand it also.

One thing to be carful of if using margined derivatives such as futures is that you stay within your asset allocation parameters in your investment strategy. for example if you have a 1 Million dollar fund with a max 70% exposure to equities in the investment strategy - the full exposure of the futures contract must not take you beyond that 700k. I'm not sure that increasing the exposure above 100% to allow for the margin ability will cut the mustard with the authorities, because the exposure is not non-recourse .

This is just my interpretation so may not be correct.

McLovin · 18 January 2015

craft said:
That is as I understand it also.

One thing to be carful of if using margined derivatives such as futures is that you stay within your asset allocation parameters in your investment strategy. for example if you have a 1 Million dollar fund with a max 70% exposure to equities in the investment strategy - the full exposure of the futures contract must not take you beyond that 700k. I'm not sure that increasing the exposure above 100% to allow for the margin ability will cut the mustard with the authorities, because the exposure is not non-recourse .

This is just my interpretation so may not be correct.

Interesting. I have never really looked into this, but I thought the general rule was to use unrealised gains and losses when measuring exposure (which seems pretty risky on the face of it). There doesn't seem to be a definitive answer, maybe Ves has some insight?

tech/a · 18 January 2015

Found this
http://www.apra.gov.au/super/documents/guidance-audit-report-derivatives-final.pdf
There is more

craft · 18 January 2015

tech/a said:
Found this
http://www.apra.gov.au/super/documents/guidance-audit-report-derivatives-final.pdf
There is more

APRA doesn't regulate SMSF's - the ATO does.

The documents you are referring too are applicable to large retail/industry superfunds, though a lot of the underlying legislation is similar for SMSF's.

craft · 18 January 2015

craft said:
Equity curve for 2013 calendar year (rebased to 100)

White line (bottom) is the XSO accumulation index – this index probably best describes the tide that influences the stocks I tend to invest in.

Red line (middle) is the All ordinaries accumulation index. This index best describes the passive index tracking approach I would take if not managing my own super.

Yellow line (top) is the equity curve. Volatility has returned since May and I have been sitting through a period of consolidation. MMS had a big impact in July.

View attachment 56390

An update for 2014 Calender year. (again rebased to 100)

Lines and rational for tracking still the same as previous.

First half of the year I was convincingly underperforming my benchmark - especially the All Ords Accumulation which contain the large cap yield plays that I'm not exposed too. I was also using that period to sell some stock that had good momentum and replace it with some unloved alternatives, so some of the underperformance in the short term was intentional to hopefully set up longer term out performance.

Not my best year, but I'm happy to have come up with some outperformance on the calendar year time frame - and more importantly I feel my portfolio is now the most undervalued (relatively) that it has been since 2007 - so good stored energy - but when will it be released?

Ves · 19 January 2015

McLovin said:
There doesn't seem to be a definitive answer, maybe Ves has some insight?

Hmmm... I don't really think a forum like this is the best place for this kind of discussion, because there are so many different types of derivative instruments out there. So I will just say "It depends."

I will say this though: be very careful with derivative instruments like CFDs and how the collateral / margin is treated by the provider. The ATO has continually stressed about breaches in relation to "charges over Fund assets" and "recourse to other Fund assets."

You would also need a derivate risk statement (DRS) to go with your investment strategy....

tech/a · 19 January 2015

Ves said:
Hmmm... I don't really think a forum like this is the best place for this kind of discussion, because there are so many different types of derivative instruments out there. So I will just say "It depends."

I will say this though: be very careful with derivative instruments like CFDs and how the collateral / margin is treated by the provider. The ATO has continually stressed about breaches in relation to "charges over Fund assets" and "recourse to other Fund assets."

You would also need a derivate risk statement (DRS) to go with your investment strategy....

Yes I agree.
But there replies have been helpful and opened up questions that I can ask those that advise me.
I'm sure those who are in a position similar would run it past their professionals.

Thanks for the help.

Boggo · 19 January 2015

I limit the derivatives in my SMSF to Instalment warrants.

Currently holding instaments on TLS and NCM. In the case of TLS the current dividend yield is just over 12% and because it's fully franked I get a tax credit.

A reasonably safe process when used on some of the larger stocks if you keep you eye on the ball imo.

McLovin · 19 January 2015

Ves]Hmmm... I don't really think a forum like this is the best place for this kind of discussion said:
I will say this though: be very careful with derivative instruments like CFDs and how the collateral / margin is treated by the provider. The ATO has continually stressed about breaches in relation to "charges over Fund assets" and "recourse to other Fund assets."

As I understand it, and again I haven't spent much time investigating this because it's not relevant to my situation, a margin/collateral call on an open position is not considered a charge over an asset. If, however, you were required to maintain a cash account, or lodge any other fund asset, with your futures/options/CFD provider in order to fund any future margin calls this would fall foul of the rules because it would be considered a charge over the funds assets. (Some of this may be relaxed when there is a DRS in place???)

Ves · 19 January 2015

McLovin said:
As I understand it, and again I haven't spent much time investigating this because it's not relevant to my situation, a margin/collateral call on an open position is not considered a charge over an asset. If, however, you were required to maintain a cash account, or lodge any other fund asset, with your futures/options/CFD provider in order to fund any future margin calls this would fall foul of the rules because it would be considered a charge over the funds assets. (Some of this may be relaxed when there is a DRS in place???)

As far as I recall: the relevant rulings are ATO ID 2007/56 and ATO ID 2007/57. Just put them in a google search and it will bring up the rulings.

Your summation would be pretty close to these rulings, except I think you are allowed to use cash (deposited into a CFD account) as collateral to meet future margin calls. But definitely not other fund assets.

McLovin · 19 January 2015

Ves said:
As far as I recall: the relevant rulings are ATO ID 2007/56 and ATO ID 2007/57. Just put them in a google search and it will bring up the rulings.

Your summation would be pretty close to these rulings, except I think you are allowed to use cash (deposited into a CFD account) as collateral to meet future margin calls. But definitely not other fund assets.

Thanks for that. My reading of 57 seems to suggest that you cannot be required to deposit money for future margin calls. Para 3, below...Also a DRS makes this ruling different to futures and options (para 4, below)...So I was wrong, with a DRS in place you can have money on deposit with your futures/options broker and allow them to have a charge over it (as long as it's in accordance with an approved body, which would be short hand for the clearing house rules of a recognised exchange I'd guess), but not with a CFD provider.

The requirement to pay a deposit and meet margin calls in relation to the CFD does not represent borrowing by the trustee; they are rather contractual liabilities to make payments if and when required and are not repayments ( Prime Wheat Association Ltd v. Chief Commissioner of Stamp Duties (NSW) 97 ATC 5015; (1997) 37 ATR 479). Investing in the CFD did not therefore contravene the prohibition on borrowing in section 67 of the SISA. The obligations in relation to CFDs are distinguished from margin lending through a broker's margin account in relation to the purchase of shares by an SMSF, which does represent a prohibited borrowing under the SISA.

The operation of the CFD bank account and the obligation to pay deposits and margins does not create a charge over any assets of the fund. The parties are relying on the contract and not on any security interest to be created by the contract ( White v. Conroy (1921) 21 SR (NSW) 257; (1921) 38 WN (NSW) 63, Berrington v. Evans (1839) 3 Y & C Ex 384; 160 ER 73). Under the CFD, the monies in the CFD bank account are the property of the CFD provider and the fund (investor) has no beneficial interest in the account.

However the trustee and the CFD provider entered into a separate written agreement under which fund assets were deposited with the CFD provider in fulfilment of the fund's obligation to pay margins. Regulation 13.14 of the SISR prohibits trustees from giving a charge over, or in relation to, an asset of the fund. This regulation is an operating standard for regulated superannuation funds under section 31 of the SISA. Subsection 34(1) of the SISA requires that the operating standards are complied with at all times. The terms of the agreement stated the circumstances in which the fund's assets would be realised, and showed an intention to create a charge over the assets. By entering into the agreement with the CFD provider the trustee has contravened subsection 34(1) of the SISA.

Regulation 13.15A of the SISR, which allows trustees to give a charge over fund assets in relation to options and futures contracts in accordance with the rules of an approved body, and in accordance with the fund's derivatives risk statement, does not apply. A CFD is not an options contract or a futures contract, and the charge was not given in relation to the rules of an approved body.

Yes, it's still a slow time of the year for me.

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