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 .”
Good article! The issue of ‘concentration risk’ is much more complex. If trustees have implemented a concentration risk in their portfolios then it implies they expect to generate more wealth from that allocation. Concentration risk per se is not bad … it simply needs to be deliberate and understood – even if it is in ETF’s.
What a surprise. When looking after their own money most people go conservative. The banks, financial services and resource stocks are over represented in the large blue chips group.
Many SMSF’s are set up close to retirement, so they are not seeking risk, hence conservative investment portfolios. They do not even mention the high cash balances which are also common in funds at this stage.