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The 3 biggest threats to SMSF investors in 2017

Glenn Freeman  |  27 Mar 2017Text size  Decrease  Increase  |  

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Market volatility, investment selection and regulatory changes are the most prominent investment challenges SMSF trustees currently face, a new AMP Capital study has found.

 

AMP Capital's latest Black Sky Report found self-managed super fund (SMSF) trustees expect a 10.9 per cent return on their portfolio in 2017--comprising 6 per cent capital and 4.9 per cent income--yet less than one-fifth have rebalanced their SMSF portfolio towards growth assets.

The report finds SMSF trustees have high growth expectations for the next 12 months, yet 55 per cent have shifted to more defensive asset allocation. Conducted by Investment Trends on behalf of AMP, the study is a quantitative online survey of 800 AMP Capital SMSF clients and is now in its third year.

Of those surveyed, 18 per cent highlighted market volatility as their biggest investment challenge, followed by investment selection (11 per cent) and regulatory changes (10 per cent).

Another striking disconnect was that around half of the survey participants said they aimed to have a fully diversified portfolio, yet the same proportion were invested in just one asset class, in addition to managed funds.

The study showed 47 per cent of SMSF trustees are invested in managed funds, with an average of $280,000 invested in them. Around one-third of these made their most recent managed fund investment on the advice of a financial planner.

"It's clear that many SMSF trustees need help, especially around portfolio construction and understanding the regulatory changes that are coming into play," says Tim Keegan, AMP Capital's head of self-directed wealth and SMSF.

"There is an increasing appetite among SMSF trustees to invest in Australian equity funds, both active and passive. Advisers can be proactive in recommending high-quality unlisted managed funds as well as introducing trustees to the increasing range of active exchange-traded funds that are now available on the market," he says.

Australia's active ETF market expanded by more than $25 billion in 2016, according to Morningstar research--having increased by 50 per cent between 2012 and 2015.

While ETFs have traditionally been regarded as a way for investors to buy an index, this has given way to also include active ETFs--which are often known as exchange-quoted managed funds (EQMFs).

What's an active ETF?

Active ETFs give more exposure to active management and more regular trading, but tend to cost more. In industry terminology, says Morningstar associate director of passive strategies Alex Prineas, "they have wider bid-ask spreads".

"You're giving up the traditional lower-cost characteristics of ETFs ... with the expectation of something more from the manager in the form of outperformance," he says.

Magellan was the first manager to launch an active ETF in Australia, with its Magellan Global Equity (ASX: MGE) EQMF rolled out in March 2015.

There are now nine active ETPs available to Australian investors, including five that were launched in 2016. Three of these were launched in collaboration between BetaShares and AMP Capital.

Betashares handles the operational aspects of running the products, and AMP Capital provides the active investment decisions.

Schroders launched an ETP version of its real-return capability last year, the Schroder Real Return ETF (ASX: GROW), though it has a few minor differences from the unlisted fund version.

Magellan also followed up the success of its flagship global equity launch in 2015 by launching an ETP version of its global infrastructure capability.

Morningstar provides coverage on two of these: the two Magellan global equity products (currency hedged and unhedged). This number is still quite low because active ETPs are such new products, with only a very brief performance track record.

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Glenn Freeman is Morningstar's senior editor.

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