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SMSF investors ditch cash for equities

Lewis Jackson  |  15 Jul 2021Text size  Decrease  Increase  |  
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Self-managed super funds are piling on risk and switching from cash to equities at record levels according to a new report on SMSFs from Vanguard and Investment Trends.

Cash allocations have only been lower in 2007 and 2008, just before the Global Financial Crisis, while allocations to direct shares, managed funds and ETFs rose to a combined average of 51 per cent.

Those making aggressive reallocations outweighed defensive reallocations for the first time since data was available, with the majority choosing domestic and international equities.

The hunt for yield saw cash allocations fall furthest for those over 55. Almost 40 per cent of all trustees were concerned about income generation amidst low interest rates.

A roaring bull market has made risk more palatable. The ASX 200 returned 24 per cent in FY 2021, its best performance since 1989. The financials subsector performance was fifteen times its five-year average as economic reopening and a booming house market took hold.

Over 50 per cent of trustees now have a positive outlook for local and international equity. They expect the All Ordinaries to return 5.3 per cent over the next year, around double the pre-pandemic level.

Expectations of the 12-month forward dividend yield hit the highest level since the crisis at 4.2 per cent.

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Morningstar analysts forecast a 2022 average dividend yield of 3.5 per cent for over 150 ASX 200 stocks under coverage.

But Morningstar head of equity research Peter Warnes cautions against an overhasty embrace of equities.

“Given where we are in the cycle and in the market, I don’t think people are taking into account how things can go wrong,” he says.

“Everyone is saying ‘Anything But Cash’, but you can’t be ABC if you’re a self-funded retiree. There’s no inflow and the living expenses keep rising.”

“If you make a mistake, how much time do you have to repair the fence?”

Trustees are more sanguine about financial market falls or covid-19 than last year, even as the number of those concerned about regulatory changes to superannuation remained steady at just over 50 per cent.

Recent changes, effective July 1, have increased pre- and post-tax contribution caps, as well as how much can be transferred into retirement phase.

The number of SMSF rose despite the pandemic and the average age and starting balance of trustees continued to fall.

Many appear emboldened by stock market success. Over 50 per cent of new trustees did so to achieve better returns, with 30 per cent confident they can do a better job than their super fund.

Around 30 per cent set up their SMSFs to invest in property.

ESG held back by information not price

SMSF trustees are open to ESG investing and say they’re held back by a lack of information, research and tools, not the risk of lower returns.

Fifty-two percent of trustees would consider investing in ESG even if returns were lower.

Almost 10 per cent—nearly 60,000 SMSFs—listed responsible investment as their top priority.

Younger trustees are convinced it won’t come to that, with more than half of them convinced responsible investing will generate better returns than non-ESG equivalents.

That falls to 13 per cent for those over 70.

The annual Vanguard/Investment Trends report was based off a representative survey of 2,523 SMSF investors conducted between March and April 2021.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email at: editorialAU@morningstar.com

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