More extensive discussions about the level of risk SMSF trustees have in their portfolios need to occur to create a clearer understanding of their decisions, according to a Vanguard Australia executive.
“When you look back over the last five to eight years, SMSFs have actually performed pretty well,” Vanguard principal Robin Bowerman told the Citi Investment Conference in Sydney last week.
“Certainly through the global financial crisis, they were sitting on a lot of cash and term deposits helped, but when you actually ran them through an institutional risk model – standard deviation over 24-month rolling periods – what we saw was probably double the level of risk thereabouts compared to a normal, diversified institutional portfolio.
“The question it raised for us wasn’t so much about the return side, but about the discussions about risk – do people actually understand the risk they’re taking?”
Bowerman said if SMSF trustees had assessed their portfolio and were comfortable with the risk they were taking, then that was adequate.
“It’s their portfolio and if they’ve made a decision, that’s fine,” he said during the SMSF panel discussion.
“The question we asked some of the advisers we deal with was: ‘Are your clients really aware of some of the unintended risk?’ because whenever we survey SMSF clients, they tended to categorise themselves in the balanced/growth part of the spectrum.
“But when you plot their portfolios, they are typically in the higher-growth/higher-risk end of it, so we think there’s a very interesting conversation to be had there.”
He said home-country bias and the lack of international exposure was driving the risk.
“A lot of SMSF trustees are now looking to invest internationally,” he said.
“But we really hope that’s for good, sound, diversification portfolio construction reasons and has got nothing to do with the fact that the United States market hit 30-plus per cent last year and looking at that a bit enviously.
“The SMSF sector has received a lot of bad press at times about people doing silly things with collectibles, ski lodges, whatever it might be, but when you strip most of that stuff away, most people we deal with have very sensible portfolios.”
