How the pros review fund performance and reconfigure for success
Running a self-managed super fund means control. It also means responsibility to ensure the fund is achieving the outcomes set by its trustees.
Running a self-managed super fund means control. It also means responsibility to ensure the fund is achieving the outcomes set by its trustees. At AMP Capital, our Investment Risk and Performance team does this on a larger scale, however many of the same processes can be applied to reviewing an SMSF fund’s performance.
Reviewing the performance of funds is an ongoing process, and involves many different analytical tools and qualitative analysis. Our team is responsible for analysing the performance of AMP Capital’s funds and strategies. We analyse the underlying exposures, the risks, and the return outcomes of the portfolios.
We measure the performance of our funds on a daily basis – as the saying goes, what you don't measure, you can't manage.
This allows us to provide timely reporting on the performance of all our funds and portfolios, and to produce detailed analysis to understand why and how investment outcomes are generated. All that analysis goes to our clients and our investment teams to support their investment decision-making processes.
Back to basics
The performance measurement process starts with clearly understanding the goals
of the fund. For instance, the investment strategy and fund managers may be targeting achieving a specific absolute return, an income return or outperforming a certain benchmark.
Self-managed super funds (SMSFs) may be able to use a similar process. The trust deed will set out the ultimate goals the fund is trying to reach. For instance, the fund might aim to achieve a return that is a certain percentage higher than the return achieved by the ASX 200 and/or above inflation. Or the assets in the fund may be allocated so that members receive a certain amount of income each year. The same process applies to AMP Capital’s funds, just on a larger scale.
Once the fund’s goals are set, performance management involves an ongoing assessment of how the assets in the fund are helping to achieve the goal.
This involves relevant quantitative analysis
, as well as internal engagement and considered discussion about what the analysis means for the fund and its investments. The discussion should also consider the risks being taken to achieve the required investment performance goal.
In particular, we are looking at unintended biases
or significant concentrations of assets in the fund. This could be by asset class, country, industry, currency, factor risks, or even individual companies.
If we do find potential unintended biases or significant concentration, we look to actively manage the exposure and mitigate risks by making a strategic trade or putting in place protection hedging the fund against adverse market outcomes.
SMSFs can take a similar approach
, just on a smaller scale. If trustees on review find some unintended biases or asset class concentration they can take steps to change their asset allocation and change that concentration. Selling down assets or using a hedging strategy are two options for trustees in this situation.
It’s important to regularly review the assets held in the SMSF and ensure the investments are still appropriate for the fund’s goals. Rather than taking a snapshot of the fund at a single point in time, for instance 30 June, it’s more informative
to use a rolling, 12-month or three-year graph, visual analytics enables an easy review of whether the fund is consistently achieving its goals.
It’s also essential to have an awareness of economics and market cycles. Market corrections pose a huge risk to SMSFs so it’s also important to understand how much downside protection
is in the portfolio. Ensure the fund’s assets are well diversified so that if one currency, market or industry experiences a significant downturn, the whole portfolio is not negatively affected.
Above all, all the assets in the fund should be directed so that they meet the fund members’ goals. Consistently measure the fund’s performance against its overarching goals and reposition the assets in the fund when necessary to ensure members’ retirement goals are achieved over time.