Low rates drive SMSFs to equities

Self-Managed Superannuation Funds (SMSFs) are now more likely to be investing in Australian equities than cash, according to new analysis released by Credit Suisse.

The analysis, released this week, points to the fact that SMSF members now own 16 per cent of or $230 billion of the Australian equity market either directly or indirectly via funds and that their equity position will continue to grow.

"We believe their equity positions will grow, especially as falling cash rates raises the prospect of a [SMSF] ‘Selfies' income deficit," Credit Suisse analysts, Hasan Tefvik and Damien Boey wrote.

"To maintain income levels, we estimate Selfies need to switch $11 billion out of cash into equities for each RBA rate cut. This is equivalent to just under one per cent of the Australian market cap."

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The two analysts said that they had originally expected Selfies would commit $12 billion into Australian equities this year but this might now prove to be too low and it was now clear the Australian equity market would remain well-supported.

"With potentially more money coming into the Aussie equity market, we believe Selfies' favourite stocks — the four big banks and Telstra — remain very risky shorts. Selfies further transitioning into equities should support the dividend trade and we highlight higher than median dividend yielders with better than median dividend growth.