SMSF trustees should reduce their large, “high-risk” allocations to direct Australian shares and cash and look to equity funds with risk management strategies instead, according to BetaShares.
Speaking at a media event in Sydney, BetaShares chief economist David Bassanese said the asset allocations of SMSF trustees are generally not what an investment professional would consider ideal.
“[SMSFs] have a high exposure to direct shares – shares in BHP, CBA [and other] individual blue chip stocks which ordinarily [are] a pretty high risk exposure,” said Mr Bassanese.
“By having such a high exposure to direct shares you’re probably insufficiently diversified because you’ve taken on a lot of companies – especially if you only own a handful of stocks, say your five favourites and one falls on hard times,” he said.
Mr Bassanese said this exposure to direct Australian shares is often balanced out with an exposure to cash.
“The problem with cash is the returns on cash are pretty low so there’s a big drag on your investment performance,” he said.
BetaShares managing director Alex Vynokur argued a dividend harvesting strategy may be a better approach for SMSFs.
A lot of investors are already adopting this strategy directly themselves, he said.
“A very significant number of self-direct investors and advisers in the market are actually doing the harvesting themselves and that’s why you see a lot of turn over,” he said.
For the individual investor, however, Mr Vynokur said this is a “very difficult exercise” and a much “more expensive exercise” as individuals pay much higher transaction costs in comparison to fund managers.
Mr Bassanese said SMSF trustees are reluctant to pay fund managers because they fear the manager may lose their funds so they instead prefer to manage their money themselves.
“Problem is that evidence suggests individual investors are not particularly great investors on average either,” he said.
However, Mr Bassanese referred to research from US research company Dalbar that showed the S&P 500 had outperformed the average annual returns of equity funds in the US over 20-year, 10-year, five-year and three-year periods.
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