Gender bias leads SMSFs to invest in risky assets when comprised of more male trustees, however, gender bias is cancelled out by group bias when it comes to cash allocations, a new industry report has revealed.
The study, “Behavioural factors in SMSF asset allocation”, was conducted by SuperConcepts and the University of Adelaide, and was based on longitudinal data on 20,121 SMSFs between 2008 and 2015.
It revealed funds with more male than female trustees tend to invest in riskier assets, such as domestic shares and property, and less in lower-risk assets like cash.
“It’s important to be aware of behavioural factors because they have the potential to impact returns,” SuperConcepts technical services and education general manager Peter Burgess warned.
“The research showed that gender bias leads SMSFs to invest in risky assets when they are comprised of more male trustees.
“This is consistent with other academic studies, which have shown males tend to have unsupported confidence in their cognitive abilities and this overconfidence becomes more pronounced when it comes to investment-related tasks.”
In addition, the paper found as the number of trustees in an SMSF increases, the investment decisions the fund makes become more conservative.
On average, SMSFs in the research had two trustees, with an average age of 61 as at July 2015, and there was a relatively even gender split within the sample, with 55 per cent of trustees being men.
Burgess said the research was also useful for regulators and other stakeholders in the superannuation sector, such as training organisations, so they can build the findings into the work they conduct in relation to training and mentoring SMSF trustees.
“Seeking professional advice and education is one way of overcoming some of these biases,” he noted.
Commenting on why funds with more trustees tend to invest in safer asset classes and less in risky assets in the context of asset allocation decisions made by SMSFs, he said: “Studies have shown that individuals behave differently when they make decisions in a group because individuals desire social acceptance.”
The study also found age was an important determinant of investor behaviour, with investors tending to be more risk-averse later in life.
It said funds with an average trustee age of less than 50 have more assets allocated to domestic shares and property.
“This finding supports the view funds with younger investors are less risk averse and engage in more risky investments. However, the funds with younger trustees also invest more in cash, which goes against our prediction,” it said.
These findings meant the age of SMSF trustees can explain some aversion toward risky asset classes, but it did not explain all investment attitudes.
The research results suggest gender and group behaviour biases are opposing forces, Burgess said.
It revealed smaller cash investments in an SMSF that can be attributed to gender biases are cancelled out by group behavioural bias. The net is a reduction in cash holdings over time.
According to the research, these findings matched its observations of decreasing cash holdings across SMSFs in the sample.
However, given the lower cash trend started subsequent to the financial crisis of 2007 and 2008, this result could indicate SMSFs have greater confidence in their investment abilities, the study found.
“The outstanding performance of the SMSF sector during the global financial crisis may also serve to embolden trustees to invest more in risky asset classes locally,” it said.
“However, SMSF investments in risky asset classes do not increase by much over the period, likely in part because of the group behaviour bias we documented.”
SMSFs included in the study had an average balance of $845,000.
During the research period, the lowest average asset value, $722,214, happened in the 2010 financial year and the highest average asset value, $1,045,938, was in the 2015 financial year.
