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Contributions caps increase making its mark

The latest quarterly Multiport SMSF Investment Patterns Survey has shown the increase in contributions caps for individuals over 59 years of age made a significant difference to fund inflows over the June quarter 2014.

Multiport’s figures revealed a 27 per cent increase in the average contribution inflow per fund, which translated to an amount of $13,750 over the quarter.

“Generally we see contribution levels climb in the last quarter of the financial year as members add to their fund in line with contribution caps. However, the increase in contributions for the 2014 financial year is the biggest we’ve seen since the higher cap for those over 50 ended in 2012,” AMP SMSF administration head of technical services Philip La Greca said.

“This increase is most likely the result of the increase in the concessional cap for members over age 59 to $35,000 compared to a cap of $25,000 applying to all ages for the previous financial year. The increase in the super guarantee from 9.25 to 9.5 per cent would have also increased contribution levels.”

The analysis of SMSF portfolios also revealed cash holdings within funds had fallen to a record low of 18.29 per cent. Multiport put this result down to historically low interest rates, currently at 2.5 per cent, as SMSF trustees realise the asset class is no longer producing the attractive returns it once did.

According to the survey, amounts previously held in cash were now being redirected to international shares.

“International equities have performed strongly throughout the year and we’ve seen an increase in funds in this asset class, as more investors move their investments away from underperforming asset classes, especially cash,” La Greca said.

“The strong performance of exchange-traded funds (ETF) has proved a compelling option for investors and we’ve seen holdings in ETFs consistently increase over the past two years. Overall international holdings being held via ETFs is now 17 per cent, an increase of 1.9 per cent in the last quarter alone.”

The report found managed funds were still the preferred method of access to offshore markets due to ease of use, with SMSFs now allocating 17.4 per cent to that type of investment vehicle.

Furthermore, the survey showed while domestic equities remained highly popular with SMSFs, portfolio allocations to the asset class had fallen.

“Australian shares are still very popular with SMSF trustees, with close to 40 per cent (39.3) of all funds allocated to this asset class. However, over the past three quarters we’ve seen slight decreases in the amount of funds invested in Australian shares,” La Greca said.

“This is largely due to the higher weighting in the top 20 local stocks, which have underperformed the All Ordinaries in the 2014 financial year.”

The proportion of SMSF assets under a limited recourse borrowing arrangement also fell from 16.8 per cent to 15.6 per cent during the quarter.

The study analysed the portfolio data as at June 2014 of 2200 funds with a total asset value of $2.2 billion.

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