SMSFs seeking cash alternatives

Investors are looking for other investment options in one of the worst historical environments for cash, with cash alternatives one area proving more popular with SMSFs, according to Prime Value Asset Management.

Innovative low-risk vehicles were proving their value by outperforming the Reserve Bank of Australia (RBA) cash rate without sacrificing liquidity, Prime Value Asset Management head of retail distribution David Glascott said last week.

“Investors are trying not to over-allocate to cash because they’ll go backwards,” Glascott said.

“There is more demand for strategies which offer outperformance while keeping a very low risk profile.

“An allocation to income-producing securities is proving its worth as a viable alternative to cash, outperforming the cash rate by a decent margin without any adverse impacts on liquidity.”

He added that liquidity was highly valued by many investors as they often needed their money back at short notice for a variety of unforeseen reasons, and term deposits with banks often contained costly break provisions.

The Prime Value Cash Plus Fund, which invests in a diversified portfolio of income-producing securities, had attracted funds from SMSFs, high net worth and foreign investors, as well as charities and other not-for-profit organisations, he revealed.

“We invest only in prime securities, with much of the portfolio invested in securities issued by major banks and financial institutions,” he said.

“Some ‘cash enhanced’ funds in the market had invested in risky investments in an attempt to generate higher returns, he noted.

“We avoid these sorts of investments as principal protection is a key objective to the fund.”

The fund delivered a 5.9 per cent return to investors for the year to 31 December 2016 inclusive of franking credits, outperforming the RBA cash rate and inflation over that time.

Glascott said the ability to offer a liquid vehicle with a daily unit price was key to the fund’s success thus far.

“Liquidity has been as important as performance,” he noted.

“Investors want to know that if they need to take their money out tomorrow they can.

“Some investors use the strategy as a medium to long-term way of outperforming the cash rate, while for others the appeal is being able to park money in the short term without overly sacrificing returns.”

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