SMSF trustees’ portfolio allocations to international equities have increased recently, but still remain low in comparison to their investments in other asset classes, according to Insync Fund Managers.
Australian Taxation Office figures for September 2013 revealed direct overseas shares accounted for just 0.4 per cent of total SMSF assets.
Even including global equities in managed funds held by SMSFs, the percentage would still be small, demonstrating that SMSF investors were missing the boat on overseas share opportunities, Insync head of research Marcus Tuck said.
SMSF holdings remained dominated by Australian listed shares, cash and term deposits, direct investment properties and Australian managed investment trusts, Tuck said.
It was understandable Australian shares were well represented in SMSFs, particularly if they paid fully-franked dividends yielding more than cash, however, Australia’s share market was dominated by financials and materials, accounting for 60 per cent of total market capitalisation, he said.
“Banks now operate in a lower credit growth environment and, by their nature, take on risks associated with high financial leverage, while mining companies are subject to wild swings in commodity prices, as we have seen,” he said.
“Most local investors are missing out on diversification into world-class companies in sectors that are under-represented on the Australian share market, such as technology, pharmaceuticals, food and beverage, consumer brands, aerospace and luxury goods.
“It’s simply a fact that there are far more exceptional companies listed overseas than there are in Australia.”
He said many of those global companies had impressive earnings and dividend track records that would be difficult for all but a handful of Australian companies to achieve.
With the Australian dollar still trading well above its historical average, there was an opportunity for SMSF investors to rebalance their share portfolios to give greater weight to global stocks, he said.
“The case was very compelling last year when the Australian dollar was above parity and share prices were lower,” he said.
“Whilst those returns are unlikely to be repeated this year, there is still a case to own high-quality overseas shares for the long term.”
SMSF investors who lacked the necessary knowledge to invest directly in global shares should consider having their portfolio professional managed, ideally in a way that managed both market downside risk and exchange rate risk, he said.
Insync is an independent global equity manager and was established in 2009 by chief investment officer Monik Kotecha.
