SMSF member appetite for yield could result in a significant asset reallocation within these investment portfolios away from cash and into domestic equities in the coming years, according to an Australian equities analyst.
“The issue here is that there is still an unusual amount of money in cash, so this is the new risk premium that a lot of self-managed super members have adopted post-financial crisis,” Credit Suisse Australian equity strategist Hasan Tevfik told the Crestone Wealth Management Investment Symposium in Sydney today.
Tevfik said cash holdings over time usually follow interest rates, but due to the low rates in the Australian market, allocations to this asset class are too high.
“Right now I think cash holdings are 6 per cent too high given where interest rates are right now. That is a measure of the risk premium. Now 6 per cent is basically $40 billion [and that’s] 2.5 per cent of the Aussie equity market,” he noted.
“So that is going to be the reason why money is going to continue to inflate the equity market. Income-seeking investors like self-managed super [funds] are being starved here and there is really only one choice [for them].”
He predicted the super reforms would reduce the number of SMSF establishments in the near future, but said this development would not dull the amount of money he expected to shift from cash into local shares.
A further reasoning behind the forecast was the traditional allocations to domestic equities by SMSFs, he said.
“Consistently over time self-managed super has stuck in $10 billion to $20 billion net into the equity market,” he said.
This made SMSFs the biggest marginal buyer of Australian equities in the market, even in comparison to some of the larger institutional investors, he said.
