Investment Strategy

Research shows trustee gender bias can impact SMSF returns

By AMP Capital

Peter Burgess, general manager, technical services and education, SuperConcepts, says it is important for SMSF trustees to be aware of the findings and consider them when making decisions about how to allocate their fund’s assets.

New research shows gender has a significant impact on self-managed super fund (SMSF) asset allocation decisions. 

Additionally, funds with more male than female trustees tend to invest more in riskier assets such as domestic shares and property and less in lower risk assets like cash. 

The study, Behavioural factors in SMSF asset allocation, also found SMSFs tend to invest more in safe investments when the number of trustees rises. 

The research, by SMSF administrator SuperConcepts and the University of Adelaide, investigates behavioural factors that contribute to the asset allocation decisions of SMSFs. The study was based on longitudinal data on 20,121 SMSFs between 2008 and 2015. It examined the impact of gender and the number of trustees on asset allocation preferences for cash, domestic shares and property.

SMSFs included in the survey had an average balance of $845,000. During the research period, the lowest average asset value ($722,214) happened in 2009/10 financial year, and the highest average asset value ($1,045,938) was in the 2014/2015 financial year. 

On average, the SMSFs in the research had two trustees and the trustees’ average age was 61 years as at July 2015. There was a relatively even gender split within the sample with 55 per cent of trustees being male.

Peter Burgess, general manager, technical services and education, SuperConcepts, says it is important for SMSF trustees to be aware of the findings and consider them when making decisions about how to allocate their fund’s assets.

“It’s important to be aware of behavioural factors because they have the potential to impact returns. The research showed that gender bias leads SMSFs to invest in risky assets when they are comprised of more male trustees”. 

“This is consistent with other academic studies which have shown males tend to have unsupported confidence in their cognitive abilities and this overconfidence becomes more pronounced when it comes to investment related task,” he says. 

According to Burgess, the research is also useful for regulators and other stakeholders in the superannuation sector such as training organisations so they can build the findings into the work they do training and mentoring SMSF trustees.

“Seeking professional advice and education is one way of overcoming some of these biases,” says Burgess.

The research also shows as the number trustees in an SMSF increases, the investment decisions the fund makes become more conservative.

“Studies have shown that individuals behave differently when they make decisions in a group because individuals desire social acceptance.”

“Specifically, in the context of asset allocations decisions by SMSFs, funds with more trustees tend to invest more in safe asset classes and less in risky asset classes” Burgess says.

Age is an important determinant of investment behaviour, with investors tending to be more risk averse later in life.

The research showed funds with an average trustee age of less than 50 years have more assets allocated to domestic shares and property. 

As the report notes, “this finding supports the view funds with younger investors are less risk averse and engage in more risky investments. However, the funds with younger trustees also invest more in cash, which goes against our prediction.” 

These findings show the age of SMSF trustees can explain some aversion toward risky asset classes, but it doesn’t explain all investment attitudes.

Together, the research results suggest gender and group behaviour bias are opposing forces. 

It shows smaller cash investments in an SMSF that can be attributed to gender bias are cancelled out by group behaviour bias. The net is a reduction in cash holdings over time. 

According to the research, “these findings match our observation of decreasing cash holdings across SMSFs in our sample.” 

However, given the lower cash trend started subsequent to the financial crisis of 2007/2008, this result could indicate SMSFs have greater confidence in their investment abilities. 

“The outstanding performance of the SMSF sector during the global financial crisis may also serve to embolden trustees to invest more in risky asset classes locally.”

“However, SMSF investments in risky asset classes do not increase by much over the period, likely in part because of the group behaviour bias we document,” the report acknowledged.

The message for trustees is to be aware of behavioural biases and factor them into making investment decisions about the fund. 

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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