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Volatility from Brexit key matter for SMSFs

The modest economic impact of Brexit means SMSF investors will need to focus on how the resulting volatility could impact on their portfolios and investment opportunities going forward.

“Economically, there could be some moderate impacts, which will be centred around the United Kingdom and Europe, but from a global perspective, we think Brexit is not going to have a very significant impact on global economic growth,” StatePlus chief investment officer Damian Graham told selfmanagedsuper.

“From an Australian super fund perspective, we think that volatility will be the key issue and we’ve seen that recently with markets having heightened volatility since the Brexit vote outcome, but they’ve clearly rebounded to where they were.”

Graham also pointed out Brexit would take some time to play out.

“I wouldn’t overreact to the short-term news,” he said.

“There’s a view that central banks will need to adjust their policies to offset that [Brexit] to provide a cushioning and we’ll then see investors look for opportunities and buy back into the market, which we’ve certainly seen in the last week or so.”

Based on the view Brexit would have a moderate economic impact, whether SMSFs invested domestically or offshore, they must come back to the opportunity set, the valuations available and the core fundamentals, he noted.

“I think there has been a fairly modest move in the SMSF world, as far as we’re aware, with regard to introducing additional international equities in their broad asset allocation, but it’s a modest trend because they do have a solid home-country bias around their equity exposure,” he said.

“That being said, we think there’s good rationale as to why you would diversify.

“[The Australian share market] is not the most balanced with regard to its exposures across different sectors, and that’s where we view that there are some benefits with regard to global equity exposure and also you can look at the Australian dollar as somewhat of a shock absorber when you’re thinking about your exposure.”

Further, in the case of pre-retiree SMSFs, sequencing risk or the pattern of returns was a key consideration, he added.

“Those people who are heading into retirement should be understanding what opportunities they have to manage sequencing risk and we believe a well-diversified approach to investing – typically trying to ensure that you have a reserve of less risky assets that you’re able to rebalance appropriately away from risk assets and into risk assets when you see an opportunity,” he said.

“There are a couple of different ways to manage that sequencing risk but ensure that you’re not selling and buying growth assets at the wrong time, so rebalancing is an opportunity you should be taking advantage of.

“Our [belief] is that it’s best facilitated through advice – an adviser can help with the analysis and process, which I think is a clear value-add – but a self-directed investor could undertake the same process.

“The implementation is important when you’re facing that increased volatility and we’ve been guiding clients with our expectation of returns to be more like average than better than average as we’re not expecting to see a stronger year moving forward.”

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