Most superannuation funds cannot accurately quantify the cost of their equity trading activities, warns a new paper by Parametric.
A majority of super funds have "very little" information about their equity trading costs, according to Parametric Australia's head of research, Raewyn Williams.
Ms Williams and co-researcher Dr Mahesh Pritamani have released the paper, Under the Spotlight: How Much Does it Cost to Trade Equities?, in an effort to help super funds identify "implementation leakage and inefficiency".
"Trading Australian and international equities, which, on average, comprise 44 per cent of their total funds invested, is [super funds'] ‘bread and butter’ investment activity, and it’s imperative they give the issue more attention as this is another area of implementation efficiency where there could be considerable savings to be made," said Ms Williams.
"To trade a passive Australian equity portfolio patiently, full costs begin at 21 bps [basis points] per $1 traded and can rise to as much as 66 bps per $1 traded. To trade a passive international equity portfolio patiently, costs begin at 11 bps per $1 traded and can rise to 26 bps per $1 traded. This is the most conservative scenario.
"Other scenarios can see trading costs rise as high as 119 bps per $1 traded for an Australian equity portfolio and 32 bps per $1 traded for an international equity portfolio. Quite clearly the cost of trading equities can be a material drag on performance," Ms Williams said.
"The need to confirm that trading is done efficiently, therefore, is greater the larger the fund is, the more the fund allocates to Australian equities instead of international equities and/or the more urgent or aggressive the fund’s or managers’ trading styles are," she said.
"Trading should not be a ‘black box’ and the ability to scrutinise all aspects of a fund’s investment portfolio is a valuable element of good fiduciary practice," Ms Williams said.
Hostplus has teamed up with global private investments firm Flexstone Partners, an affiliate to Natixis Investment Managers, to start a US p...
APRA has announced that it will watch super funds more closely and has not ruled out naming and shaming underperforming funds. ...
The head of Australia’s largest industry superfund has warned of the significant changes afoot for those working with other people’s ret...