Australia’s self-managed super fund (SMSF) trustees have turned their focus to international markets to realise more gains, after continued low interest rates deliver un-inspiring cash returns, according to the latest Multiport SMSF Investment Patterns Survey.
In the June quarter 2014, cash holdings in SMSFs reached a record low of 18.29 per cent, the lowest level since the quarterly survey began in 2007. Coupled with a historic low-interest rate of 2.5 per cent since August 2013, cash remains a less attractive option for investors.
AMP SMSF Administration Head of Technical Services Philip La Greca said the significant decrease in cash holdings has mainly flowed into international, property and equity sectors.
“International equities have performed strongly throughout the year and we’ve seen an increase in funds in this asset class, as more investors move their investments away from under-performing asset classes, especially cash,” Mr La Greca said.
“The strong performance of exchange traded funds (ETFs) has proved a compelling option for investors and we’ve seen holdings in ETFs consistently increase over the past two years. Overall international holdings being held via ETFs is now 17 per cent, an increase of 1.9 per cent in the last quarter alone,” Mr La Greca added.
There has been a continued preference for managed funds over direct investment due to the complications still present in investing overseas directly. As a result, allocation to managed funds continues to increase, now at 17.4 per cent.
While there has been an increase in international equities, the allocation of funds to Australian equities has been lower than expected over the past three quarters due to the performance of Australia’s top 20 stocks.
“Australian shares are still very popular with SMSF trustees with close to 40 per cent (39.3) of all funds allocated to this asset class. However, over the past three quarters we’ve seen slight decreases in the amount of funds invested in Australian shares. This is largely due to the higher weighting in the top 20 local stocks, which have under- performed the All Ordinaries in the 2014 financial year,” said Mr La Greca.
During the last quarter of the 2014 financial year, there was a significant increase in the contribution levels made by SMSF members. The average contribution inflow per fund for the June 2014 quarter increased 27 per cent to $13,750.
“Generally we see contribution levels climb in the last quarter of the financial year as members add to their fund in- line with contribution caps. However, the increase in contributions for the 2014 financial year is the biggest we’ve seen since the higher cap for those over 50 ended in 2012.
“This increase is most likely the result of the increase in the concessional cap for members over age 59 to $35,000 compared to a cap of $25,000 applying to all ages for the previous financial year. The increase in the super guarantee from 9.25 to 9.5 per cent would have also increased contribution levels,” Mr La Greca said.
Property remains a popular investment option for SMSF trustees, remaining at 17.8 per cent of all assets invested in the fund. However the number of funds who are currently utilising a borrowing arrangement has declined to 15.6 per cent, compared to 16.8 per cent the previous quarter. The average property loan amount for the quarter was $272,000.
The quarterly Multiport SMSF Investment Patterns Survey covers around 2200 funds, a sample of the SMSFs Multiport administers and the investments they held at 30 June 2014. The assets of the funds surveyed represent approximately $2.2 billion.