Invast Australia: SMSFs on verge of diversification disaster


By

September 22, 2015

 Self-managed superannuation funds (SMSFs) allocated record amounts into Australian cash investments in the June quarter of 2015 despite falling interest rates,but virtually ignored overseas assets, despite  returns being pumped up by a falling Australian dollar, according to Gavin White, Chairman of Invast Australia’s Investment Committee.

SMSF assets dipped slightly during to quarter to $589.9 billion in the June quarter of 2015, down from $600.3 billion in the March quarter, with Australian share holdings dropping to $187.1 billion from $199.3 billion during the quarter, in line with the falling share market. SMSFs’ Australian share holdings represented almost one-third of all SMSF assets, according to new data from the Australian Taxation Office.

SMSFs invested just $1.8 billion in international shares in the June 2015 quarter, or less than 1% of their portfolios, while they invested a mere $533 million in offshore managed investments and $329 million in offshore property.

In contrast, SMSFs’ holdings of cash and term deposits jumped to $157.7 billion, another fresh record, up from $155.7 billion in the March quarter, with cash investments now representing around 27% of all SMSF assets.

Invast’s Gavin White said the numbers highlight a huge home investment bias, which is potentially harming investment returns for most SMSFs and exposing them to huge risks if the local share marketcorrects more than those offshore.

“SMSF portfolios often lack any basic degree of diversification into overseas assets given their huge concentration on Australian equity and cash investments. The problems with this are two fold. First, investors are missing out on often superior returns offered by offshore financial markets, with the S&P/ ASX 200 well underperforming the US stock market, and underperforming most European marketsover the past year.

“SMSFs are missing out on booming sectors, such as the all-important healthcare and technology industries, for example, which aren’t well represented in the ASX/ S&P200, while they have overdosed on bank and resources shares,” Mr White said.

“The second problem with not diversifying offshore is that Australian SMSF investors are missing out on currency depreciation benefits.  If SMSFs have offshore investments denominated in offshore currencies such as the US dollar, to the extent that the Australian dollar falls, investors will gain some returns back on their unhedged international investments, which works to offset losses on their Australian investments if the local share market falls.

“Given we can expect sustained weakness from the Australian dollar, this means many SMSF investors are missing out on an important risk buffer offered by a falling local currency,” Mr White said.

Invast Australia is a wholly-owned subsidiary of Invast Securities, which is listed in Japan.  The company is expanding its local presence, with a strong focus on sophisticated clients and institutional relationships.

Invast Australia has recently launched its thematic investing platform, PortfolioInvestor. The platform currently has around 30 investment themes from which investors can chose to diversify their portfolios. The professionally constructed portfolios consist of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs.

“Our Diversified Asset Bearish strategy, which can help to protect against correcting markets, is up a huge 69% over the year to Sep. 15 and 3.9% over the past month.

“Our Smart Banks Australia portfolio uses smarter weights to improve the risk-return profile of the sector and to reduce excessive exposure to the big banks,” Mr White said.

“Other popular themes include Ageing Population Australia, Bullish Australian Property, Iconic Australian Brands and Takeover Targets Australia, which we expect to be popular given the falling Australian dollar is likely to make our listed companies more attractive to foreign predators,” he said.

“Each of these themes is carefully considered, measured and analysed by our Investment Committee to ensure that one single stock cannot have a large impact on overall performance. A portfolio of themes further adds to diversification, which is essential to cushion against a market correction,” said Mr White.

Source: Invast Australia


Cut & Paste conveys information received directly from the organisations concerned. Statements and releases published here have been selected for their relevance to the financial planning profession. They are generally unedited, and the views expressed do not necessarily reflect those of Professional Planner.


Have your say

Will the measures announced in the budget affect your clients?
Vote Now