Superannuation funds and managed funds should structure their offerings to make generation of after-tax alpha possible, according to Plato Investment Management.
Plato said this could be done through segregating the assets of their accumulation and pension pools so that the assets could be managed separately.
Pointing to Productivity Commission data, it said there was a significant deficit in the after-tax management of super member accounts.
Low-tax investors, such as retires and some self-managed super funds, could earn more if they better considered their portfolios and returns on an after-tax basis.
Plato senior portfolio manager, Peter Gardner, said: “Fully franked dividends are currently the most valuable form of return for all Australian investors bar those investors on the very highest 45% tax rate, where the 50% CGT discount makes a long-term capital gain the most valuable”.
Gardner said if investments were being managed in a commingled pool, the assets would likely be managed on a before tax basis as it was not possible to optimise an after-tax outcome for multiple investor types at the same time.
“This may leave after-tax alpha ‘on the table for many investors,” he said.
"It is common for Australians to start actively engaging with their superannuation fund as they approach retirement so it is important that these superannuation funds can show that they specifically tailor their portfolios for pension phase investors.
"If super funds, fund members and low tax investors fail to account for franking on ordinary or special dividends, investors may be missing out on significant after-tax value. It could add over an additional 1% return. Over the past financial year, however, the difference has blown out to a massive 3.6%, a huge difference to performance.”
He noted that off-market buybacks highlighted the benefits of managing investments from an after-tax perspective as it added value after-tax for tax-exempt investors and usually for low taxed investors.