New laws, market conditions changing SMSF investment patterns

Asset allocation by self-managed super funds (SMSFs) across fiscal 2018 has revealed the impact of new laws and market conditions on fund trustees’ strategies, a survey by SuperConcepts has shown.

Cash, fixed interest, and property allocations have dropped, while shares and exchange-traded funds (ETFs) are up amid growing exposure to international equities, the latest Investment Patterns Survey of 2600 SMSF funds by SuperConcepts showed.

Cash and short-term deposits dropped from 19.8 per cent in June 2017 to 17.3 per cent in June 2018.

“Cash was always higher than expected due to the legislative changes that gave personal concessions, so the drop in cash allocations doesn’t surprise us because SMSFs are active investors,” said Phil LaGreca, SuperConcepts executive manager of SMSF technical and strategic services.

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“It looks like once trustees got the benefits from legislative change, they’ve invested in shares and equities to give their fund the best chance in terms of performance.

“Fixed interest has been tracking down since March, but it’s not significant and we can probably expect that to change as interest rates start climbing.”

LaGreca said that while managed funds continue to be the most popular way for trustees to obtain international equities exposure, the use of ETFs is steadily growing.

“The split continues to show pooled structures are the preferred method of investing in overseas markets due to the complications still present in investing overseas directly,” he said.

Investment using ETFs represented 4.7 per cent of all assets during the June quarter, while the overall allocation to managed funds increased from 20.3 per cent to 20.7 per cent.

“ETFs are mostly heavily used in the international equity sector, representing 16.7 per cent of all international equity holdings,” LaGreca said.

“ETFs are growing as a way for people to access international stocks and it’s worth watching for any potential volatility with US trade agreements being renegotiated, and the effect of strong currency fluctuations in certain markets.”