Investment mix changes off reforms

The asset allocations of SMSFs across the 2018 financial year have shown the impact of new legislation and market conditions on trustee strategies, according to the latest industry analysis.

The SuperConcepts “SMSF Investment Patterns Survey” for the June quarter found cash, fixed interest and property allocations dropped, while shares and exchange-traded funds (ETF) increased amid growing exposure to international equities.

Cash and short-term deposits dropped to 17.3 per cent in June 2018 from 19.8 per cent in June 2017.

“Cash was always higher than expected due to the legislative changes that gave personal concessions, so the drop in cash allocations doesn’t surprise us because SMSFs are active investors,” SuperConcepts SMSF technical and strategic services executive manager Phil La Greca noted.

“It looks like once trustees got the benefits from legislative change, they’ve invested in shares and equities to give their fund the best change in terms of performance.

“Fixed interest has been tracking down since March, but it’s not significant and we can probably expect that to change as interest rates start climbing.”

The top 10 listed securities trustees invested in represent 11.9 per cent of total investments, down from 13.4 per cent during the June quarter 2017.

“During the last few quarters, trustees have gradually reduced their exposure to the top 10 listed securities, which represent just less than 33 per cent of all trustees’ Australian equity holdings,” La Greca said.

Meanwhile, exposure to international equities increased from 14.2 per cent to 14.4 per cent, the survey found.

“When looking at performance in the different sectors and currency movements, the theoretical allocations should have been 14.9 per cent if trustees would have left their allocation unchanged for the quarter,” La Greca noted.

“This gap is sourced by the payment of distributions on 30 June from the international managed funds, which are reflected in the performance but removed by ex-distribution prices.

“Managed funds continue to be the most popular way for trustees to obtain international exposure, though the use of ETFs is steadily growing.”

The overall allocation to managed funds increased from 20.3 per cent to 20.7 per cent for the quarter.

La Greca said the split continues to show pooled structures are the preferred method of investing in overseas markets due to the complications still present in investing in those markets directly.

Investments using ETFs represented 4.7 per cent of all assets during the June quarter and allocations to ETFs have shown a consistent increase over the past years.

“ETFs are mostly heavily used in the international equity sector, representing 16.7 per cent of all international equity holdings,” La Greca said.

“ETFs are growing as a way for people to access international stocks and it’s worth watching for any potential volatility with United States trade agreements being renegotiated and the effect of strong currency fluctuations in certain markets.”

The SuperConcepts survey covered 2600 funds, a sample of the SMSFs administered by the group, and the investments they held at 30 June 2018.

The sample represents around $3.2 billion in assets.

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