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SMSF experience used for managed fund development

SMSF investor behaviour is beginning to influence financial product development, with one recognised fund manager using this factor in designing a capital-protected offering it recently released to the market.

Perennial Value Management said it looked at what SMSF investors traditionally did to protect their capital when developing its Wealth Defender Australian Shares Trust, since most of that group survived the global financial crisis relatively unscathed.

In particular, the manager examined how SMSF investors used cash holdings to provide the capital protection they needed while retaining the flexibility of being able to re-enter the equities market when investment conditions improved.

“I must say we very much had that self-managed super fund market in mind [when designing this product],” Perennial Value managing director John Murray said.

“Certainly [from] a number of conversations we’ve had with investors in that area they can see a fairly strong connection with that excess cash and something like this that allows them to get back into the market.”

Perennial Value eventually decided to use a combination of equity and index derivatives and cash holdings to provide the capital protection component of its Wealth Defender Australian Shares Trust. Specifically, the cash holding can be as high as 50 per cent depending on market conditions and volatility.

Perennial Value head of retail funds and strategy Brian Thomas said the manager used the SMSF experience as a starting point, but looked to improve the investment opportunities available.

“Self-managed super funds buy 18 blue chips and then they put a whole heap of cash, maybe 30 per cent, [in their portfolios], some of which they call strategic and some of it’s because they’re scared of markets,” he said.

“So if the market goes up, they’re going to get 70 per cent of the result, whereas what we do is be fully invested when we feel good about markets and in a very efficient way buy some protection.”

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