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.
SMSF portfolio construction under fire
I have been advised the International Shares are more risky and it is better to stick to Australian Blue chips which pay good dividends to provide income stream to live on for older people ie. at retirement age. Are there any ‘guidelines’ for the amount or % of exposure to International Shares in older peoples’ SMSF portfolios (retirees). I would have thought a Retiree can gain some benefits while the International Shares are on a good run and quit when the Markets change. I would appreciate your comments on this specific situation.
regards
Monica
Dodgy enough gambling on local shares. Gambling in other jurisdictions is a dodge too far. For those unclear: the characteristics of an investment are known outlay, duration, yield and risk.
Just wondering- Australian share funds have a mandate to invest in Australian shares. Likewise International Share funds have a mandate to invest in International shares. An investor choosing to invest in single asset class funds has the responsibility to invest across a variety of these fund to obtain appropriate diversification. An Australian Share fund (generally) can’t invest across a range of other asset classes because they feel like it. It is important for investors to read the PDS and be aware of which asset classes the fund can legally invest in according to the constraints in this document.
Conversely, a diversified fund has a mandate to invest across a range of asset classes. This mandate may to have a relatively fixed allocation (Strategic Asset Allocation) across different asset classes, or more flexibility (Tactical Asset Allocation) to move between asset classes.
I wonder if those managed funds out there that are based on Australian shares only, or international shares only, are listening to this advice and more importantly will they follow it? I doubt it. Diversification certainly has its benefits but on the other hand many of the SMSF have been through a number of downturns and are still fairing very well indeed.
Mr Resnik is suggesting appropriate diversification to increase risk-adjusted returns. He is suggesting an appropriate Strategic Asset Allocation process based on the needs of each individual SMSF fund member. He is not suggesting market timing or picking the next best performing asset class, or picking the next GFC or bull market. He is talking common sense based on a very large body of evidence. Calm down, he isn’t suggesting moving from a SMSF to a retail fund.
Thus another Guru speaks. I assume he predicted the last financial crisis.
Most of my clients in SMSF have better returns over the last 5 years than retail funds and they control their own destiny. Rather than entrust their funds to Gurus.
Public Accountant.
I assume Paul is aware of mhow old the ATO statistics are.What has the SMSF sector been doing in the last 6 months? Perhaps Paul knows that already.Maybe they should all switch back to the professional funds managers who looked after their clients so well in the most recent GFC – now there was the time where an SMSF being over exposed to cash was a great strategy.