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SMSFs may be underexposed to global markets

Glenn Freeman  |  30 Jun 2016Text size  Decrease  Increase  |  

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Self-managed super funds (SMSFs) are considerably underweight global markets, with a less than 1 per cent exposure to overseas direct assets among Australian SMSFs, according to Andrew Alcock, managing director of HUB24.

"We have a sector we believe is massively out of step with the accepted theory on asset diversification," he says.

Australian Tax Office (ATO) figures indicate 0.9 per cent of Australian SMSF assets are invested directly overseas.

This compares to an international asset exposure of around 24 per cent among Australian Prudential Regulation Authority (APRA) regulated super funds.

By contrast, the ATO figures show SMSFs have a weighting of more than 30 per cent to Australian equities, along with 17 per cent in domestic real estate and 27 per cent in cash.

"It's out of whack in terms of well-adopted investment theories on the principles of diversification as followed by the professionals, [which are] not echoed in Australian SMSFs," Alcock says.

Exposure to global assets for advised SMSF trustees is around 17 to 20 per cent among the clients using HUB24's platform, who all use financial planners.

What about Brexit?

The Brexit-related spike in volatility in the UK and across European and other markets may cause some investors to question whether now is the right time to add more international assets to their SMSF.

"It's the herd mentality. While some are pulling back--and yes there's risks--there are very good opportunities with very good companies, that have prospects which are very different to those of the country in which they are domiciled," Alcock says.

"Professional managers know who those countries are. Not every investment tracks according to the economy in which it resides.".

Why are SMSFs underweight global stocks?

Alcock believes SMSF investors are underexposed for various reasons, including the complications of accessing foreign markets, foreign currency settlements, along with the difficulty of obtaining relevant information and legal recourse overseas.

He sees an overexposure to Australian assets as a problem, because the local market is characterised by a lack of diversification, with financials and materials accounting for around 66 per cent of GDP.

Domestically listed IT and healthcare companies only account for 9 per cent of the market, compared to 27 per cent of global markets.

SMSFs in general are looking for more managed investment, or implemented, opportunities to invest in, as opposed to just buying Aussie shares, according to a recent Investment Trends survey.

"This survey also found 22 per cent of SMSF investors intend to invest internationally in the following 12 months, yet less than 4 per cent of their asset allocation was to international direct allocations," Alcock says.

Retail access

Access to HUB24's international managed portfolios is currently restricted to financial planners, who can access them on behalf of their clients.

But Alcock indicates this will soon change.

"In terms of our product, we have a small cohort of self-directed investors ... but our typical approach to the market is via intermediaries, because we believe in the value of good advice," he says.

"However, the innovation itself will be available, over time, to the broader market ... there's a gap in terms of 'do we play to the direct space with SMSF trustees'--and we can," he says.

Costs

As an example, an investor with around $1 million invested on HUB24's platform will pay an administration fee of around 20 basis points.

The separate manager fee varies according to the various fund managers, with AllianceBernstein (AB) indicating it would charge around 77 basis points for access to its global funds, or 60 basis points for US-only funds.

At the time of writing, Arnhem Investment Management, Southeastern Asset Management and AllianceBernstein are among the investment managers available to investors.

"It is the nature of our solution and treatment of tax and costs that maximise outcomes for investors, while supporting delivery of these products efficiently for advisers," says Alcock.

"International managed portfolios, with their direct stock access, professional management and easier underlying administration clearly align to the demands of SMSFs.

"We believe they will be instrumental in significantly increasing SMSF exposure to international equities."

More from Morningstar

• SMSF assets fall as shares slide, property on the rise

• SMSF assets will not need segregating

 

Glenn Freeman is Morningstar's senior editor.

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