Asset allocations must stay true to fund strategy

asset allocations investment strategy

Trustees can make changes to their asset allocations following recent market downturns but these should be consistent with the SMSF’s investment strategy.

Any recent changes SMSF trustees have made to their investment asset allocations are unlikely to put their investment strategy under examination from the ATO as long as the changes are consistent with the long-term objectives of the fund, an SMSF technical expert has said.

Smarter SMSF chief executive Aaron Dunn said ATO guidance on investment strategies made it clear using broad ranges to allocate investments was unacceptable and that would continue to be the case despite recent downturns in financial markets, but changes to an investment strategy during this time were permissible.

“There is a misconception that a trustee cannot change the elements of their investment strategy and in particular the asset allocation,” Dunn said in a webinar yesterday.

He added that when trustees have been instructed, via the ATO guidance, to look at the whole circumstances of the fund, that means they should be creating specific objectives over a set period of time.

“It does not mean that entire elements of the investment strategy are locked in stone, and to achieve a rate of return may mean making changes to the asset allocation and in some cases in direct response to events like the coronavirus pandemic,” he said.

“What is required is segmented change in the strategy through the asset allocation, alongside evidence as to why that decision has been made, but the overarching objectives should remain the same.”

He highlighted that while some trustees currently may be looking to make changes, such as increasing an allocation to cash, these short-term variations would not be accepted by the ATO as a reason to readopt broad-range asset allocations.

“The ATO doesn’t accept that short-term variations to a fund’s articulated investment approach, including specified asset allocations, constitute a variation from the investment strategy,” he said.

“A trustee needs to articulate how their fund plans to invest its funds, and if they require broader ranges, why they require them to help achieve the goals of the investment strategy.”

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