SMSF investors are missing the boat on global equities: Insync

Although the amount of overseas shares held in Self-managed Super Funds (SMSFs) has been increasing, it is still miniscule as a percentage of total SMSF assets. The latest ATO figures for September 2013 show that direct overseas shares account for only 0.4% of total SMSF assets.  Including global equities in managed funds held by SMSFs, the percentage would still be quite small.

SMSF holdings are dominated by Australian listed shares, cash and term deposits, direct investment properties and Australian managed investment trusts.

It is understandable that Australian shares are well represented in SMSFs, particularly if those shares pay fully franked dividends yielding more than cash. However, Australia’s share market is quite concentrated, with Financials and Materials accounting for 60% of total market capitalisation.

“Banks now operate in a lower credit growth environment and, by their nature, take on risks associated with high financial leverage, while mining companies are subject to wild swings in commodity prices as we have seen,” Tuck reminds investors.

“Most local investors are missing out on diversification into world class companies in sectors that are under-represented on the Australian share market, such as technology, pharmaceuticals, food & beverage, consumer brands, aerospace and luxury goods.

Many of those companies are wired to the meteoric rise of the ‘emerging consumer’ in many parts of the developing world.

It’s simply a fact that there are far more exceptional, world class companies listed overseas than there are in Australia.”

“Many of those global companies have impressive track records of compounding earnings and dividends at a rate and consistency that would be difficult for all but a handful of Australian companies to achieve.

With the Australian dollar still trading well above its historical average, there is still an opportunity for SMSF investors to rebalance their share portfolios to give greater weight to global stocks.

The case was very compelling early last year when the Australian dollar was above parity and share prices were lower. Whilst those returns are unlikely to be repeated this year, there is still a case to own high quality overseas shares for the long term.”

Tuck says SMSF investors who lack the necessary knowledge to invest directly in global shares should consider having their portfolio professionally managed, ideally in a way that manages both market downside risk and exchange rate risk.