‘Crowded trades’ catching out SMSFs
SMSF trustees and professionals have been warned against piling money into expensive assets, with some falling into the trap of believing newer or non-traditional asset classes and products will deliver on yield.
GEM Capital adviser Mark Draper says the biggest investment risk for SMSFs at the moment is making decisions on the basis that the yield on the investment is beating the cash rate.
“This doesn’t necessarily make a good investment. [SMSF practitioners] have got to be really careful that their clients are buying into something that’s going to stack up in the medium term,” Mr Draper said.
“There are some pretty crowded trades out there at the moment that SMSFs should be careful of and I’m talking about some of the more defensive earnings streams that are really highly priced.”
Mr Draper said there are some expensive parts of the stock market, particularly in sectors such as healthcare.
SMSF practitioners and trustees should also be careful of certain venture companies that are offering second mortgage loans.
“You might get 7 per cent interest but securities with a second mortgage are something the banks won’t touch,” he warned.
“Whatever you invest in, it’s got to be sustainable and I think that often gets overlooked by people that are chasing higher income yield whether that’s through a venture company or an unlisted property trust with 75 per cent gearing on one property.”
Mr Draper said while there are also opportunities, there are a “few more warning signs around at the moment” for SMSFs.
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.