Australian Super member direct

Good point about International having higher capital gains to defer / neutralise.

I'm running out of ideas for an accurate International comparison given the relevant ETFs that match SunSuper haven't been around for long enough. Another option might be to find a pooled index option that better matches VGS (85% instead of 99% of developed markets). Will let you know if I come up with anything.

 

I might have found a suitable International candidate. QSuper International Shares follows the MSCI World Developed Markets ex‑Australia net dividends reinvested accumulation index, hedged after fees and tax which I think is the WXHG ETF that has been around for 7 years. Will give it a spin.

Ok QSuper International Shares 7y return to Nov 30 on $100,000 initial investment in accumulation fund.

$192,282.38 @9.79% p.a. =FV(9.79%, 7, 0, -100000)

Compared to SPDR WXHG MSCI World ex-Australia Hedged ETF
$181,470.90 @8.89% p.a. =RATE(7,0,-100000,181470.9)

Pooled fund was 90 basis points better.

QSuper MER 0.16% vs WXHG MER 0.35%, but we still have a difference of 71 basis points I can't explain.

 

Another scenario we could keep an eye on over time are the HostPlus International Indexed options. I think the unhedged and hedged versions follow something pretty close to VGS and VGAD via MSCI World ex Australia but managed by IFM Investors, although I'm not 100% sure.

CaptainFi wrote an article which mentioned they follow

• 50% MSCI World Index ex-Australia (unhedged in AUD with net dividends reinvested)
• 50% MSCI World Index ex-Australia (unhedged in AUD with gross dividends reinvested).

although I'm not sure what the difference is between investing net dividends and gross dividends, so it may not exactly be VGS or VGAD with DRP enabled and 15% tax deducted.

3y returns are 9.69% and 8.12% respectively vs VGS and VGAS @ 10.6% and 8.5% respectively, so could indicate some deferred gains coming into play in the pooled funds.

It's a shame about the lack of transparency in the pooled funds. I'm much less confident about my modelling in International Shares than the Australian Shares options which follow the known ASX200 index.

We will likely never know for certain unless we can get official word from the fund managers (which is unlikely).

If you are 100% confident you can buy and hold until converting to pension phase at age 60, direct options at least provide transparency and certainty

 

The problem appears to be with the member direct options that you have to have 20% in their pooled fund and then you can have up to 20% each in other allocations for the remaining 80% (i.e.Direct Shares or ETF's/LIC's) AFAIK you couldn't have 100% in VGS?

 

No limit for VGS @Redwing or VAS but only 20% for AFI/ARG !!
No idea why they do not offer more LICS/ETF's

 

That is a big upside of Australian Super, not having to play around with 20% limits per holding for a simple VAS/VGS portfolio.

Downside is
- 0.04% AUM fee on the 20% outside of direct ETFs
- Crap indexed options for the 20% outside of direct ETFs. eg Indexed Diversified with 22% Fixed Interest is about the only option

 

I use the AU/INTL shares allocation and just select my allocation I always thought this was indexed but the weird thing is whilst you can drill down and see holdings etc it never actually says indexed as I wanted all allocated to equities

 

Same here, I got a 70/30 split going with Aus/int shares.

 

The other risk with direct invest options is you need to be confident that the trustee isn't going to change the rules, or fees over time. Under current super law if you're close to preservation age then the risk is low as the deferred capital gains won't be as significant, there's less time for the trustee to change the rules and you worst case you can pull out tax free and move elsewhere. For those with a longer runway to presentation age maybe not. Of course all depends on balance/sums involved

 

I’m pretty sure the are active. Fees are 0.18% and 0.44% respectively which seems to indicate some amount of active management although I’m sure they end up hugging the index somewhat to avoid tracking error

 

I am with Aus Super and 100% is in High Risk/High Growth

 

Going slight off track

I see UniSuper is now open to anyone

High Growth Portfolio Example

 

Mrs Hockey Monkey are happy long term members.

Returns last year below. Australian Shares slightly under performed and International Shares out performed index ETFs. My concern is whether they can keep this up long term as AUM grows, so I may switch to Vanguard when released.

Australian Shares 28.59% vs VAS 28.94% (after super tax)
International Shares (which is around 33% hedged) 32.04% vs VGS 27.32% / VGAD 33.32% (after super tax)
Global Environmental Opportunities 48.89%
Global Companies in Asia 28.75%

 

After the Stalinesque culling of University academics......they need FUM. This was one of the best super funds for a long time. No idea on their future performance obviously.

 

Hopefully their investment approach is backed by empirical evidence and academic research

 

Getting closer to pulling the trigger on an SMSF with ETF holdings, I've had another attempt at quantifying the impact of pooling on returns.

A 90/10 SunSuper International Shares Unhedged and Emerging Markets allocation has returned 14.91% p.a. to August 31 2021

TLDR; a 50/50 VTS/VEU portfolio starting on 1 September 2011 returned 15.89% p.a. after tax, beating the pooled fund by around 1%.

A 90/10 VGS/VGE portfolio would be a little less as it generates some internal capital gains taxed at 10-15%.

Details
According to this graph, US was about 50% of the global market cap in 2011


So I used ShareSight to model a 50/50 VTS/VEU portfolio starting on 1 Sep 2011. The US withholds 15% tax on dividends from these funds which coincidentally is exactly the superannuation tax rate on income, so no further tax would be payable due to FITO.

As each dividend is paid quarterly, I buy the ETF most out of balance. For the past 10 years of crazy growth of the US and the Aussie dollar starting at parity in 2011, this meant buying VEU every single time. Imagine the returns if buying VTS instead

Even by directing all dividends to VEU, US allocation grew from 50% to 62% of the total portfolio during the period, but never triggering the need to rebalance when following a Larry Swedroe 5/25 rebalancing rule against global market cap. So I'm pretty confident this is what I would have done if holding this portfolio in the past 10 years. The Larry Swedroe 5/25 Rule, however if I'd cracked and overweighted VTS the returns would have been even better. Buying VEU is basically a worst case outcome.

Spreadsheet I used to work out how much VEU to buy each time. Note, I ignored the cost of brokerage and the admin on the SMSF which I estimate to be about the same as the SunSuper $878 admin fee for a balance > $800k

 

Another version that compares SunSuper to VGS/VGE, this time 5 years and VGS hasn't been around for 10 in ETF form.

A 90/10 SunSuper International Shares Unhedged and Emerging Markets allocation has returned 13.97% p.a. to August 31 2021

A 90/10 VGS/VGE returned 14.44% over the same period.

So VTS/VEU seems to have around a 1% advantage over pooled funds and VGS/VGE around 0.5%

This was a little more complicated as capital gains were involved and the FITO didn't cover the entire 15%.

Basic calc was to split the distribution into income and capital gains components, set aside 15% and 10% respectively less FITO already paid and them use that amount to reinvest in the ETF being the 90/10 allocation.
eg Reinvest =D3+G3-(D3+E3-F3*2+G3-H3)*15%+F3*10%-E3-H3

 

I'm in the same predicament. Interesting that VTS/VEU performs better. Will wait for Vanguard Super and then decide.

 

VTS/VEU performs better because the current rules in the US allow heartbeat trades to eliminate all internal capital gains

How 'Heartbeat Trades' Are Boosting ETF Returns

VTS/VEU only pay dividends where as VGS pays distributions which include internal capital gains.

This could all be about to change if this proposed US bill is passed

https://www.nasdaq.com/articles/etf-taxation-in-the-crosshairs-2021-09-13

 

Regarding VTS/VEU versus VGS, I did a bit of reading and remember an extensive analysis comparing them on another forum, not sure I can post the link but it isn't hard to find.

In short, it was too close to call, so I went for the Australian domiciled option. However, the proof is in the pudding with the results.

I'm not going to jump across to VTS/VEU but I still hold VEU and IVV.

If they change the law that would probably be due to a typical campaign from the active crowd trying to justify their high fees. I assume that will hurt all ETFs or just US domiciled?