Unlocked: A framework for superannuation equity portfolio evolution in a taxable environment

Raewyn Williams

Raewyn Williams

All sectors of the superannuation industry agree that successful equity investing entails some short-term pain to enjoy long-term gain.

Superannuation funds and investment managers who embrace an active management philosophy can feel this acutely when their style does not pay off in a certain stage of the market cycle or there is a regime shift to a ‘new normal’. Those with more faith in the market itself – passive investors -feel the pain of underperforming active peers in market downturns or when active theses are having their day.

Yet, all would advocate to ‘hold the line’, for superannuation investing is a long-horizon game designed to benefit members who have a whole working life to save for retirement within superannuation and, for most, decades more in retirement to enjoy the fruits of superannuation.

This long-horizon perspective should make it easy for superannuation funds to continue to evolve their equity portfolios as new, better structures become available.

And yet, there is a roadblock: in Australia, funds invest in a taxable environment and a step forward in the portfolio evolutionary chain can require a fund to write a cheque to the Tax Office. This tax bill too often cuts short or delays what should be a natural, healthy process of superannuation equity portfolio evolution.

Our concern is that, on its face, baulking at a single, upfront tax cost sits rather uncomfortably with an espoused commitment to long-horizon investing, write Raewyn Williams and Josh McKenzie, Parametric Australia, in their latest in-depth whitepaper.

They note : “The important task of evolving equity portfolios may be stymied by upfront tax costs, and suggests a framework super funds can use to solve this problem.”

Read the full paper.

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