SMSFs continued to hoard cash despite very low returns and remained heavily invested in Australian shares, highlighting the investment risk that many funds faced, risk profiling specialist FinaMetrica has said.
According to the latest Australian Bureau of Statistics data released last week, SMSF assets reached $580.2 billion in the March quarter, while Australian share holdings jumping to $193.1 billion and the total local managed funds industry hit a record $2.6 trillion in funds under management.
Furthermore, ATO data revealed SMSFs’ share holdings were up $18.4 billion in the March quarter, an increase of 10.5 per cent from the December 2014 quarter.
Cash and term deposit holdings rose 1 per cent to $157.4 billion over the same period, meaning cash investments represented 27 per cent of SMSF assets.
FinaMetrica co-founder Paul Resnik said SMSFs now accounted for almost 30 per cent of Australia’s $2 trillion superannuation pool and that proportion was likely to grow as more Australians opted to manage their own retirement investments.
“However, there are dangers involved with doing it yourself and SMSFs need to ensure they achieve a greater geographic diversity with their asset allocation,” Resnik said last Friday.
“Unlike superannuation funds generally, SMSFs have most of their assets invested in Australian shares and cash investments, which could spell disaster for funds when the local market corrects.
“While one-third of SMSFs are invested in Australian shares, SMSFs had invested just $2.7 billion [of the $580.2 billion total assets] in international shares in the March quarter, which is a stark contrast with one-third of all managed funds being invested offshore or placed with offshore managers.”
He said SMSFs would be prudent to consider how they could lower their Australian equities risk, reduce cash holdings and rebalance their portfolios to incorporate greater geographic diversification.
“Given that some of the best returns right now are being offered by offshore stock markets, SMSFs are missing out on these opportunities given their huge bias towards local shares,” he said.
“Moreover, if the Australian dollar continues to fall, investors could see even greater gains from holding offshore investments.”
Further industry data revealed SMSFs allocated record sums to Australian property, with $72.1 billion invested in non-residential property as at 31 March and another $21.8 billion in residential real estate, both figures increasing 1.4 per cent over the March quarter.
Many SMSFs looked to be in need of good investment advice, Resnik said.
“By better understanding how financial markets work and the impact of asset allocation on portfolio behaviour, SMSFs can better prepare for market downturns when they happen,” he said.
“No SMSF should be surprised by falling markets and they should be prepared for the inevitable.”
