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SMSFs cautioned on cash splash

Christine St Anne  |  24 Oct 2012Text size  Decrease  Increase  |  

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Christine St Anne is Morningstar's online editor.


Self-managed superannuation fund (SMSF) trustees still continue to hold high levels of cash despite falling cash rates. This was a key finding from the latest investor sentiment report from Investment Trends.

A similar survey in April found the "wall of cash" had grown to represent 28 per cent of total cash holdings at $133 billion. This figure also included $50 billion in excess cash, which would otherwise have been invested in other types of assets.

"With the official cash rate falling by 100 basis points since April, there was an expectation that trustees might also scale back this excess cash in favour of other assets," Investment Trends chief operating officer Eric Blewitt says.

"However, trustees continue to be willing to hold and even increase their exposure to cash as an asset class," he says.

In fact, the Investment Trends SMSF Investor Intentions Index found 18 per cent of trustees intended to further increase their exposure to cash in the coming month, while 5 per cent of them had plans to lower their allocation.

"This is clearly reflective of the ongoing concern that is prevalent among all investors," Blewitt says.

The SMSF trustees surveyed were not optimistic about the market outlook. Although one-year capital return expectations have risen since May 2012, five-year capital return expectations remained at 4 per cent.

"For these trustees, equities are not off the table by any stretch of the imagination. Around three quarters of SMSF trustees expect to increase their domestic equity exposure," Blewitt says.

However, key market concerns continue to plague the confidence levels of these trustees. Blewitt says investors remain concerned about the European debt situation and a slowing China.

Many of these trustees fear these events will have a knock-on effect on the domestic economy, according to Blewitt.


Value beyond cash

With unprecedented global events and market volatility, it is not surprising that confidence has taken a hit among investors and trustees.

However, it is in these markets where investors can find some terrific value.

The discrepancy between price and value is greatest in times of unprecedented market volatility, according to Morningstar head of equities research Peter Warnes. In other words, investors can pick up some quality companies at low prices.

He says a 28 per cent portfolio weighting in cash is overly bearish and SMSF trustees tend to be more conservative than professional investors such as fund managers.