Consulting firm criticises SMSF asset allocation
SMSF trustees are exposing themselves to significant risk by focusing their investment efforts too heavily in Australia, warns a risk profiling consultancy firm.
FinaMetrica co-founder Paul Resnik said the “huge bias towards local assets” is exposing SMSFs to “significant investment risks and [trustees] should be urgently reviewing their asset allocations before these risks are crystallised”.
Mr Resnik said based on ATO data from the December quarter of 2014, Australian shares accounted for 32 per cent of all SMSF assets, cash and term deposits represented 28 per cent or $156.7 billion, while only 0.4 per cent or $2.4 billion was invested in international shares.
“When Australian markets correct – and they will – SMSFs will be hard hit given the sheer size of their exposure to Australian shares,” said Mr Resnik.
“But if SMSFs look offshore, there are unlimited opportunities to diversify their exposures across different asset classes and geographies, thereby reducing investment risks.”
Increasing their exposure overseas, Mr Resnik said, would also see SMSFs benefit from stronger returns.
“US markets have, for example, outperformed Australian markets over the past 12 months and the fall in the Australian dollar has magnified returns for international investors,” he said.
“If the Australian dollar continues to fall, then we could see even further gains.”
Mr Resnik said economic growth in Australia is lacklustre given the commodities downturn and the nation’s falling terms of trade, which could also depress share market returns this year.
“The US is expected to experience stronger growth in 2015, which could prompt such a further fall in the Australian dollar.”
Most SMSFs, Mr Resnik argued, “still don’t largely understand how debilitating a downturn in Australia markets would be to achieving their retirement goals".
“Good investment advice can help minimise the risk,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.