A rise in the number of self-managed superannuation funds (SMSF) to record numbers during the December 2015 quarter highlights the appeal of do-it-yourself investing, but SMSFs still pumped millions into cash, with Ben Bucknell, chief executive of OnMarket BookBuilds (OMB), warning that such a strong cash bias could harm wealth creation over the longer term.
The net assets of SMSF surged to a fresh record of $594.6 billion during the quarter, up 2.7% from $578.9 billion in the September quarter, according to the latest Australian Tax Office (ATO) statistics. Those funds represented 30% of the total superannuation asset pool of $2.0 trillion as at the end of the December quarter.
SMSFs’ holdings of cash and term deposits rose to a fresh high of $155.4 billion in the December quarter, up from $154.5 billion in the previous quarter, with cash investments now representing 26% of all SMSF assets.
There were a record number of 566,735 SMSFs in Australia as at December 31, 2015 (up from 560,998 as at September 30) with 1,075,267 members.
Ben Bucknell, chief executive of OnMarket BookBuilds (OMB), an Australian fintech opening up access to ASX initial public offerings (IPOs), said the data highlights that too many SMSFs are falling into the trap of investing into assets which they know rather than into a more diverse range of equities, which over the long-term would help to growth wealth at a much faster rate than cash.
“To put total SMSF assets into perspective, an average of $40 billion of new equity is issued by Australian companies every year via IPOs and capital raisings conducted by listed companies. That means that just 7% of SMSF balances could fund Australian companies’ entire annual new equity capital requirements. Or put another way: today’s SMSFs could fund the equity capital requirements of ASX listed companies for the next 14.8 years,” Bucknell said.
SMSF Australian share holdings jumped 6.3% to $178.4 billion, up from $167.9 billion in the September quarter, accounting for 30% of all SMSF assets. Against that, just $1.9 billion was invested directly in offshore equities, according to the ATO data.
“Like investors everywhere, Australian investors have a home bias. But added to this is a strong bias towards bank and mining shares. A greater exposure to a more varied group of companies, including those listing on the ASX and high-growth small-cap companies, would help to build wealth more effectively over time.
“The average return of the 93 companies that listed on the ASX in 2015 was 23% in 2015, according to analysis of Dealogic data by OnMarket. Compare that with the ASX All Ords, which lost 4.3% last year and losses for household names like BHP Billiton (down 33%) and NAB (down 9% in 2015), and this highlights the need for investors to diversify out of the large caps into higher-growth opportunities such as IPOs,” Bucknell said.
OnMarket is an innovative online investment access portal that gives the public direct access to ASX IPOs. Via this app, retail investors don’t need to go through a broker to participate. It’s completely free to bid and invest directly in an ASX IPO.
OMB’s presence as a fintech disruptor was firmly established when the technology was launched by Prime Minister Malcolm Turnbull in October 2015, who said at the time: “The brilliance of this is simply that it makes it easier to buy, to trade. This will open up the investment market considerably.”
Bucknell said OnMarket is unique in that it is opening up direct access to IPOs and it treats all investors equally. “To date, most retail investors have largely been denied access to IPOs. Even when retail investors have been able to participate, allocations have been significantly scaled back. For example, in the Medibank IPO for bids over $14,000, retail investors were given just $0.05 of every $1 they asked for above their initial $7,150 allocation, while the institutional scale-back was never disclosed.
“Our own tool is a game changer – the OnMarket allocation algorithm ensures investors get treated equally and fairly whether they are a wealthy institution or a mum-and-dad investor. Our platform is built to generate instant notifications and to host free company information and research. All of this can be done on a desktop or mobile device such as a smart phone, which also meets the key trend of investors accessing information and managing their finances on mobile devices,” he said.
