Self-managed super funds diversify portfolios

Peter Terlato 12 August 2016

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There's also been an uptick in the use of financial planners among SMSFs.

Self-managed superannuation funds (SMSFs) seeking capital growth for their portfolios amidst market volatility and economic uncertainty are diversifying their investment options in the hopes of generating steady returns, according to new research.

The 2016 Vanguard/Investment Trends Self-Managed Super Fund Report found the total number of SMSFs grew 4.8% to 567,000 in the 12 months to January 2016, representing around $595 billion in retirement savings.

In comparison, APRA-regulated super funds accounted for $1.4 trillion in investments over the same period.

The report, formed from the responses of more than 3500 SMSF trustees and 570 SMSF financial advisers, revealed the average SMSF balance was $1.2 million.

More than a third (36%) of trustees' main investment goal was to grow a sustainable income stream, while 50% sought at least some capital growth.

But it's hard to make long-term money when rates are edging towards zero. Expectations across the board are for lower future returns.

In 2015 the demand among SMSFs for domestic shares softened and as a result, there was more interest in actively managed funds, infrastructure and real estate investment trusts.

Direct equities, as a share of SMSF portfolios, fell to an average of 38% last year, down from 45% in 2013.

"With interest rates at all-time lows, the data suggests SMSFs are favouring assets that they see as helping them diversify their portfolio," Investment Trends head of research and wealth management Recep III Peker said.

Vanguard Australia head of market strategy Robin Bowerman said that in terms of global equities, trustees were nervous about a slowdown in China and global debt levels, however, the diversification benefits of international exposure shouldn't be ignored.

"While forecast returns are lower, that is tempered by low inflation expectations. We expect patient investors with portfolios that are broadly diversified will be rewarded with steady growth over the long run," she said.

Exchange-traded funds (ETFs) hold assets such as stocks, commodities or bonds. Of the 90,000 SMSFs that hold ETFs, 64% said they invested in these vehicles as a way to more easily access overseas markets. 38,000 trustees said they intend to begin investing in ETFs over the next 12 months.

The research reports also found that the number of SMSF trustees with unmet financial advice needs rose from 212,000 in 2014 to 255,000 in 2015.

Over the last year 37% of SMSFs used a financial planner. Although only a slight increase from 2014, this represents the first uptick in the use of planners since 2007.

SMSFs can provide a solution for those who want to control how and where they invest their money, but they certainly have their risks as well.

Picture: Shutterstock

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