Australian self-managed superannuation funds (SMSFs) must diversify out of the cash safe haven if they want to attract higher returns in 2014, an asset manager says.
According to Australian Taxation Office (ATO) figures, almost a third (29 per cent) of SMSF money was placed in cash in the September quarter of 2013, despite falling interest rates and higher-than-expected inflation.
Market Vectors Australia, an ETF asset manager, said SMSFs should split their options in 2014 as inflation and tax were likely to push down cash funds.
"The Australian market is deeply concentrated, with the top five securities accounting for almost 40 per cent of the market. This concentration is also reflected in SMSF portfolios," Market Vectors managing director Arian Neiron said.
"Historically, SMSFs have invested in only a small number of shares, favouring large-cap companies. The result is increased concentration risk through lack of diversification. This approach can lead to a risk profile that is actually higher than many trustees realise."
Neiron said an ETF could reduce equity risk while offering SMSFs access to several markets and companies.
"As well as term deposit investments, SMSFs have a wide range of listed investment options, such as ETFs, which can be used as a long-term growth strategy or to gain short- to- medium-term equity market exposure while deciding where to put funds longer term," he added.
