Stocks Special Reports LICs Credit Technical Analysis Funds ETFs Tools SMSFs
Learn
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features Technical Analysis SMSFs Learn
About

News

SMSF assets fall as shares slide, property on the rise

Nicki Bourlioufas  |  29 Jun 2016Text size  Decrease  Increase  |  

Page 1 of 1

The assets of self-managed superannuation funds (SMSF) fell modestly in the March quarter of 2016, reflecting weakness in the equity markets during the early months of 2016.

But property and cash deposit exposures grew, reflecting a flight to the perceived safety of these asset classes.

The fund flows could help benefit the values of residential and commercial property, as well as listed property trusts, which have performed much better than equities over the past year, experts say.

There was a record number of 572,424 SMSFs in Australia as at 31 March 2016 (up from 565,990 as at 31 December 2015) with 1,085,286 members, according to the latest Australian Tax Office (ATO) statistics.

Reflecting a drop in share prices, the net assets of SMSFs fell to $589.9 billion during the first quarter, down 0.5 per cent from $593.1 billion in the December quarter.

Total SMSF share holdings fell 2.8 per cent to $172.1 billion, down from $177.0 billion in the December quarter, reflecting a 4 per cent drop for the S&P/ASX 200.

The value of SMSFs' Australian shareholdings was down from a $190.4-billion record high in the March 2015 quarter.

Local shares now account for 29 per cent of all SMSF assets. Against that, just $1.9 billion, or 0.3 per cent of total assets, were invested directly in offshore equities, according to the ATO data.

In contrast, SMSFs had about 17 per cent of their total holdings invested in direct property.

Investment by SMSFs into residential property totalled a record $24.4 billion as at 31 March, up from $24.1 billion in the December quarter, while their non-residential property investments jumped to a fresh high of $74.8 billion, up from $73.8 billion in the previous quarter.

Managing director of SQM Research, Louis Christopher, said SMSFs liked commercial property over residential property because of the tax benefits and the positive cash flows.

"They buy commercial property for the positive cash flow and SMSFs effectively get some tax relief so they aren't paying tax on the positive cash flow," he said.

"Moreover, yields are higher on commercial property than on residential property."

Christopher added that the flow of money into this asset class was likely to continue given attractive yields.

Despite falling interest rates, SMSF investments in cash and term deposits rose to a fresh record of $155.5 billion in the March 2016 quarter, up from $154.6 billion in the previous quarter.

Cash investments now represent 26 per cent of all SMSF assets.

Arian Neiron, managing director of VanEck Australia, said his exchange-traded fund business has seen a 20 per cent increase in investors into the VanEck Vectors Australian Property ETF (ASX: MVA) since June 2015.

"With the RBA recently dropping rates and long-term interest rates still remaining low, A-REITs (Australian real estate investment trusts) have been favourable to investors, providing good income and strong capital growth," Neiron said.

"Typically, SMSFs are invested in only a small number of direct shares, favouring blue-chip dividend-paying companies. The result is increased concentration risk and only a few sources of income.

"This can lead to a risk profile that is actually higher than many trustees realise."

Neiron said an ETF is one of the best ways an SMSF investor can access the Australian listed property sector because it can provide cost-effective, liquid and transparent exposure to a range of listed A-REITs in a single trade on the ASX.

"Typically, investors have favoured the Australian property sector and A-REITs are attractive to SMSFs because of their high yields," he said.

In the coming months, SQM's Christopher expects SMSF property investment to hit fresh highs as Australian investors simply seek a relatively safe place to invest their money without huge ongoing volatility and the capital losses associated with shares.

Much of that flow of funds will benefit the values of residential property and commercial property, as well as listed property trusts which have performed much better than equities this year, he said.

Yet despite falling interest rates, even the big super funds are piling into cash, with recent data for the March 2016 quarter revealing Australian pension fund cash deposits stood at a record high of $264.8 billion in the December 2015 quarter, though down 1 per cent to $263.1 billion in the March quarter.

SMSF assets now account for around 30 per cent of the total superannuation asset pool in Australia of $2.0 trillion.

More from Morningstar

• SMSF assets will not need segregating

• End-of-year SMSF tax considerations

 

Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind.

© 2016 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written content of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.