SMSFs stick to guns during volatility

While SMSF investors tend to pare back their ETF equity exposure and increase their allocation to defensive assets, such as bonds and cash, during periods of volatility, this behaviour is at the margins, according to State Street Global Advisors (SSGA).

SSGA SPDR ETFs Asia-Pacific head of ETF research and strategy Matthew Arnold pointed out most of these portfolios were for members’ retirement, which in many cases was decades away.

“So there may be some slight repositioning, but it’s pretty minimal I think. I reckon if you looked at the average asset allocation before the [recent] sell-off and after, obviously there’s going to be a slight reduction of equities due to the sell-off,” Arnold said at SSGA’s February SPDR Bites briefing.

“I would say the reduction of equities due to people rebalancing out and buying something more defensive would be very minimal. It’s at the margins.”

The broader ETF market experienced $100 billion worth of net flows globally in January, which was the strongest month on record. However, the last week or so witnessed $32 billion coming out of ETFs.

“It’s certainly a significant number, but it’s a small portion of the money that’s come into ETFs over the last year or so,” Arnold said.

He also said it was difficult to separate retail and institutional global flows in ETFs, but generally low-cost diversified ETFs were a strong core for the typical retail investor, including SMSFs.

“We’d encourage them to look at their long-term sort of investment goals and maybe do a little bit of repositioning if they’re way overweight equities or their equity portfolio is too aggressive or something,” he said.

“But ultimately markets go up and down and what happened last week should be viewed as little more than a speed bump.”

Low volatility in equity markets over the past 12 to 18 months had increased complacency, but since the sell-off began around 10 days ago, many of the major indices have approached the official correction territory of 10 per cent, he added.

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