SMSF trustees have high growth expectations for the next 12 months, yet as many as 55 per cent have moved to a more defensive asset allocation amid continued market volatility, according to a recent industry paper.
The AMP Capital SMSF Suite “Black Sky Report 2017” identified a disconnect between return objectives and portfolio asset allocation whereby trustees expected a 10.9 per cent return on their portfolio this year – 6 per cent capital and 4.9 per cent income – yet only 18 per cent of them had made changes to position their portfolio for growth.
This, however, was an increase of five percentage points from 2015.
The report also found nearly half of surveyed SMSF trustees said their aim was to have a fully diversified portfolio, yet more than 50 per cent of their portfolio was invested in just one investment type outside of managed funds.
“The results don’t surprise me in the sense that we’ve been interviewing SMSF trustees for a number of years, this is the third Black Sky Report, and the dichotomy between what they want and what they do is something we’ve observed over time,” AMP Capital head of self-directed wealth and SMSF Tim Keegan told selfmanagedsuper.
“I think what’s interesting now is that the return expectations and portfolio construction are perhaps mismatched. That is a more stark result this year.”
Keegan said that demonstrated an opportunity for advisers to assist in further educating SMSF trustees around the concepts of portfolio construction and risk/return.
“Clearly, the report shows us that in general they do a lot of research themselves on investment selection, but it’s typically at the level of individual investments rather than necessarily spending time to think about asset allocation, portfolio construction or risk/return across an entire portfolio,” he noted.
“In my mind, that’s the real opportunity for advisers, particularly when portfolios are being built up over time, and so it means stepping back from the portfolio and assessing what it looks like in terms of the asset allocation meeting the retirement objectives of the trustee.”
Another theme from the report revealed SMSF trustees were recognising their preference for professional management alongside their direct investing activities, he said.
“So their appetite for broader diversification, the use of exchange-traded funds and use of managed funds, it’s almost that we might see at some point in time where they are progressively shifting – the awareness is there now that they need to make some changes, but they haven’t been active on them so far,” he said.
The report also identified the biggest investment challenges for SMSF trustees as market volatility, investment selection and regulatory changes.
“It’s clear that many trustees need help, especially around portfolio construction and understanding the regulatory changes that are coming into play,” Keegan said.
“With nearly 60 per cent of SMSF trustees remaining open to using the expertise of a financial adviser, it’s clear that this is a huge opportunity for advisers to tap into.”
The research also found SMSF trustees continued to find managed funds attractive, with 47 per cent each investing about $280,000 into them, and 30 per cent revealing they made their most recent managed fund investment after receiving advice from their financial planner.
Keegan said there was an increasing appetite among trustees to invest in Australian equity funds, both active and passive.
The report was conducted by Investment Trends and based on a quantitative online survey of nearly 800 AMP Capital SMSF investors.