SMSF portfolio construction under fire
A correction in the Australian stock market could expose SMSF portfolios to substantial losses given their limited exposure to international assets, according to one consulting firm.
The latest Australian Taxation Office statistics show total SMSF assets increased marginally over the September quarter to $544.4 billion.
But only $2.3 billion – or a “miniscule” 0.4 per cent – was invested in international shares directly, said FinaMetrica co-founder Paul Resnik.
Another $467 million of SMSF money was directed into overseas managed investments, Mr Resnik said.
“SMSFs need to reassess their very high exposure to Australian assets, which represent almost 100 per cent of their portfolios,” Mr Resnik said.
“This lack of geographic diversification exposes SMSFs to potentially substantial losses when Australian markets correct,” he added.
Many SMSF trustees do not understand, or have confidence in, managed investments or ETFs through which they can gain exposure to offshore investments, Mr Resnik said.
“So they avoid them. Instead, they stubbornly stick to what they know: Australian property, shares, term deposits and cash,” he said.
Nor do SMSF investors realise what they are missing out on, Mr Resnik said.
“US markets, represented by the S&P500, for example, are up 15 per cent over the 12 months to mid December, while the depreciation of the Australian dollar could have boosted this by a further 10 per cent,” he said.
By comparison, the Australian share market has risen by seven per cent over the same time period, Mr Resnik said.
“Moreover, SMSFs are missing out on asset classes that are not well represented in Australia such as technology stocks like Apple and Microsoft, leaving them overexposed to the limited investment choices in Australia such as banking and resources shares,” he said.