The Labor Party’s proposal to scrap excess imputation credit funds will not result in an immediate shift in SMSF portfolios as premium yields on Australian stocks will still be powerful enough to attract investors, according to Ausbil.
Ausbil chief executive Ross Youngman told an Ausbil investment outlook media luncheon in Sydney today that he does not expect significant changes in SMSF asset allocation if the federal opposition’s franking dividend proposal becomes policy.
“I think that’s going to take time, but I still think there’s a premium on yield for Australian stocks and it will still be more powerful than potentially causing a shift to international [stocks], especially given the type of owner of those SMSFs,” Youngman said.
SMSF trustees may be advised by a financial planner on their investment strategies, but it is still an individual decision-making process, he added.
“I think it’s going to take time for people to think through it and what it means, but I still think there would be a premium on yield so I wouldn’t see a massive shift,” he said.
Ausbil director and co-head of equities John Grace told the media briefing the imputation credit policy is not equity friendly and he expects an increase in corporate buy-backs if Labor’s policy proposal comes to fruition.
“From a top-line perspective when we’re talking to corporates they’re very conscious of that potential policy change and therefore in my view over the next six months or five months there’s going to be quite a few companies announcing off-market buy-backs of franking credits generally while that rebate is available,” Grace said.
“I think over the next five months in particular up until the potential election I think what we’ll see is corporate Australia react.”
He said he expects the level of objection to the policy proposal will rise not only from the SMSF sector, but also industry funds as members face the prospect of decreased rebates, including those who receive tax refunds from charity donations.
But he said he does believe corporate Australia will necessarily begin cutting back on the payout ratio because they still pay out a significant amount of earnings and dividends.
“But because of that franking component being reduced I think there may be subtle changes here and there,” he said.
“I wouldn’t say in aggregate you’ll see yield fall in the market as a result of that, but I think you might see more on-market buy-backs as opposed to off-market buy-backs, and the benefit to you as an underlying shareholder and unitholder is going to be less.”