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Consulting firm points to potential SMSF ‘disaster’
The current level of SMSF investment in Australian shares and cash investments “could spell disaster for funds” when the local market corrects, says FinaMetrica co-founder Paul Resnik
Mr Resnik said unlike most superannuation funds, SMSFs have “most of their assets invested in Australian shares and cash investments” with a third of the total $580.2 billion in SMSF assets invested in Australian shares but only $2.7 billion in international shares.
He also said that while ABS managed funds data shows Australian super funds are finally reducing their deposits, “SMSFs continue to hoard cash despite very low returns”.
“SMSFs would be prudent to consider how they can diminish their Australian equities risk and reduce cash holdings and rebalance their portfolios to incorporate greater geographic diversification,” said Mr Resnik.
“Given that some of the best returns right now are being offered by offshore stock markets, SMSFs are missing out on these opportunities given their huge bias towards local shares.”
If the Australian dollar continues to fall, Mr Resnik said, SMSF trustees could see even greater gains from holding offshore investments.
Unhedged international investments can spread investment risk given that when equity markets fall, the Australian dollar tends to fall also, he added.
“[This] can cushion a downturn in global share markets given the benefits of local currency depreciation,” Mr Resnik said.
“For this reason, SMSFs might want to reassess their asset allocations and their home bias.”
Many SMSFs therefore “look to be in need of investment advice”.
“By better understanding how financial markets work, and the impact of asset allocation on portfolio behaviour, SMSFs can better prepare for market downturns when they happen,” he said.
“No SMSF should be surprised by falling markets and they should be prepared for the inevitable.”
Well views like Resnik's were busted at the recent SPAA conference. As Stuart has suggested, we were advising our SMSF clients to invest in the US when the dollar was at parity in the expectation that the high dollar wouldn't last forever.0- This smacks of self interest - what a surprise. Advising SMSF's to invest in OS markets now is like trying to close the gate after the horse has bolted. If they had invested when the exchange rate was on par or higher, they are looking at significant gains. Now, who knows, but it does not seem to want to go down by much more until the US fixes itself, which may be tomorrow, next year or even later. Hence, not necessarily good investment advice - certainly not for a whole category, particularly when the stats being used have been proven to be notoriously unreliable.0
- How many times to we need to hear this.
A lot of SMSF investors invest in what they know, which is local. Also a lot of local managed funds are invested in aussie equities and are not much more diversified that a lot of SMSF
I am also sure a lot of SMSF would happily invest in overseas markets if there was a suitably easy way to invest in overseas markets directly without having to engage all the middle men that are required at the moment and thus incur all the necessary fees that go with that.0
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