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SMSF cash holdings flow into equities

Flock of birds migrating north.

SMSF cash is flowing into domestic and international equities.

Cash balances decreased significantly during the last quarter of 2017 as trustees invested their cash holdings in the Australian and international equities sectors, the latest SuperConcepts report has found.

The “December SMSF Investment Patterns Survey” revealed cash levels fell to a two-year low from a peak of 19.8 per cent in June 2017 to 17.3 per cent in December, signalling a return to normality following the introduction of the new super contribution rules.

SuperConcepts SMSF technical and strategic solutions executive manager Phil La Greca said SMSFs experienced large spikes in contributions in the first half of the year as trustees sought to make the most of the existing higher contribution cap allowances before the 1 July changes.

Since 1 July 2017, the total value members can hold in existing tax-free pension accounts cannot exceed $1.6 million and new reduced contribution caps apply to member balances.

“Equities were the big winner from the cash injection in the first half of the year as trustees chasing higher returns decided to invest in the last quarter,” La Greca said.

The allocation to Australian equities rose from 35.4 per cent to 36.9 per cent in the fourth quarter and international equities experienced an increase from 13.9 per cent to 14.2 per cent.

“Managed funds were increasingly used as a vehicle to invest in both domestic and international equities as trustees look for new growth opportunities,” La Greca revealed.

“Investors who are time poor or lack confidence often turn towards specialised managed funds to help them pick a portfolio of small-cap stocks or navigate the complexity of investing overseas.
Managed funds now represented 19.6 per cent of total SMSF assets.”

Contribution levels stabilised in terms of the long-term relative patterns that existed prior to the announcement of the super reforms in 2016, the survey said.

The average contribution level for the quarter decreased from $3838 to $3611 per quarter, in line with expectations following the introduction of the new reduced non-concessional and concessional caps that commenced on 1 July.

Commenting on expectations for the next quarter, La Greca said: “It will be interesting to see whether we see a spike in lump sum benefit payments as trustees implement lump sum withdrawal strategies to help stay under the $1.6 million pension transfer balance cap.”

The survey covers about 2670 funds, a sample of SMSFs administered by SuperConcepts and the investments held at 31 December 2017.

The assets of the funds surveyed represented around $3.2 billion.

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