SMSF portfolios continue to face ‘concentration risk’
Stock allocations within SMSF portfolios are insufficiently diversified, according to new Investment Trends research, with more than half the equity assets in an average SMSF allocated to financials and banks.
Based on findings in the Investment Trends 2015 Self-Managed Super Fund (SMSF) Report, Investment Trends' head of research, Recep III Peker, said SMSFs currently allocate 31 per cent of their share portfolio to bank or financial stocks and another 21 per cent to resources and material stocks.
The report was based on a survey almost 4,000 SMSF trustees and 501 financial advisers, and also found that 22 per cent of SMSFs have half of their equity portfolio in financial stocks alone.
Mr Peker said SMSFs holding fewer stocks typically have a much higher concentration risk in their portfolios.
“Even among those holding more than 20 stocks, 20 per cent say over half of their share portfolio is invested in financial and/or resource stocks,” the report said.
“When you think about how banks have done over the past six months or how resource stocks have done in the past year, you have to wonder, were their portfolios sufficiently diversified to mitigate the performance of those stocks in their portfolios,” Mr Peker said.
SMSF trustees, he said, are beginning to recognise they need to increase the diversification of their portfolios and are increasingly looking at managed funds as a way to do this.
“One key growth area recently has been exchange-traded funds,” Mr Peker said.
“What we find now is that 82,000 SMSFs hold ETFs within their portfolio: that’s an increase of 55 per cent from the previous year.”
There were 53,000 SMSFs using ETFs within their portfolio in 2014, Mr Peker said.
Vanguard head of market strategy and communications Robin Bowerman said the large portion of assets SMSFs continue to hold in direct shares, and the increasing levels of excess cash, present a range of issues for SMSF portfolios.
“They may be building in more concentration risk at a time when trustees are increasingly concerned about financial markets,” Mr Bowerman said.
“However, it is positive to see investors, both advised and unadvised, increasing their diversification through vehicles like managed funds and ETFs .”
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.