Capital Group Australia managing director Paul Hennessy

The managing director of a large US-based investment management firm has warned self-managed superannuation fund members and their advisers to think carefully about timing and diversification before jumping into the global equities market.

Speaking to Professional Planner, Capital Group Australia managing director Paul Hennessy said investors with minimal experience were often keen to broaden their domestic portfolio ­without giving enough thought to how and when to do it.

“My concern – particularly when you think about the low allocation within the SMSF to international equities – would be that they hop in at the wrong time and therefore leave again at the wrong time,” Hennessy said.

“Make sure you’re thinking about a highly diversified exposure to the markets as you’re stepping into that,” Hennessy said. “We all know the value of compounding interest and staying invested and not mistiming their investment – particularly in the international markets.”

The comments are timely in the lead-up to the next federal election, as Labor’s promise to eliminate excess franking credits could encourage many SMSF trustees to rebalance their portfolios.

While SMSF portfolios have traditionally skewed towards large domestic equities such as banks and mining companies, partly to take advantage of imputation credit refunds, the promised policy change – if Labor got elected – could trigger members to swing to global equities.

A joint report from Vanguard and Investment Trends in March revealed that while 82 per cent of SMSF holders believed diversification was important, 46 per cent admitted they were either “not at all diversified” or only “somewhat diversified”.

Hennessy said he didn’t expect any massive shift out of domestic equities, as SMSF investors have slowly been getting better at reducing their reliance on Australian company assets.

“If you look at the [SMSF] asset allocation five, 10 or 15 years ago, it’s been moving at a gradual process over that time,” he said.

Capital Group investment director David Polak noted that “the ability to invest in certain markets doesn’t necessarily mean you have to do it immediately”.

“Advisers have usually been very good at letting investors know that they should average into new investment,” Polak said.

The Investment Trends/Vanguard report also noted that there was plenty of opportunity for advisers to grow in the SMSF market; 210,000 SMSFs use a financial planner and 383,000 do not.

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