Trustees cautioned against complacency

Two financial services firms are warning SMSF investors against complacency as the “fear index” approaches a record low.

Grant Samuel Funds Management and Triple3 Partners have cautioned SMSF investors not to take market returns “for granted”, with the CBOE volatility index (VIX) hitting a low of 11.32 in May.

The VIX index, often referred to as the “fear index”, is a measure of expected volatility on the S&P500 Index over the next 30 days.

Triple3 Partners founder and chief investment officer Simon Ho said in the past a low VIX has frequently been a “harbinger” of significant market falls.

“This period could be the calm before the share market storm,” he said.

“The last time the VIX was at these low levels was at the start of 2007, the period immediately before the onset of the GFC,” he added.

Mr Ho said he expects volatility levels will start to climb by the end of 2014, with a lot of “uncertainties” ahead in world economies.

“There is the housing bubble in China, which will start to deflate at some point; the experimental quantitative easing taking place in Japan, which will have unknown consequences; and the US’s decision to unwind its quantitative easing program, which should see asset prices and risk premiums in that country return to more normal levels,” he said.

“Investors can’t afford to be complacent about their portfolio diversification,” Mr Ho added.

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