Choose an appropriate benchmark

russia-112445_640If you’re going to compare the performance of something against a benchmark, it is very important to make sure you’re using an appropriate benchmark. If not you risk making decisions based on incorrect information.

This holds true for mum and dad investors with Self-Managed Super Funds (SMSFs), as much as it does for our Sovereign Wealth fund – the “Future Fund”.

Earlier this month Harold Mitchell, a Fairfax Journalist, came up with a juicy journalism piece claiming that the Future Fund is under-performing. He used the Alaska Permanent Fund and industry super funds as benchmarks.

Peter Costello, who is Chairman of the Future Fund board of Guardians called him to task over this claim. The truth is that the Alaska Permanent Fund and the industry funds operate differently to the Future Fund, with different mandates, and he rightly claims that these are not fair comparisons.

 The comparisons of returns may not be fair. On the other hand, a comparison of a growth in balance between the Alaska Permanent fund and our Future Fund could be informative, as it could force our Government to consider whether we should follow Alaska’s lead and regularly contribute to the fund.

The Future Fund operates with a Tactical Asset Allocation (TAA) approach. They set a target asset allocation, but change the target asset allocation from time to time based on perceived threats and opportunities in various asset classes.

Which asset allocation approach are you using in your SMSF?

Read Peter Costello’s opinion piece here: http://www.futurefund.gov.au/__data/assets/pdf_file/0019/7264/2016_March_Opinion_piece_Costello_A482265.pdf

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