Unlocked: A Framework for Superannuation Equity Portfolio Evolution in a Taxable Environment
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.