SMSFs increase international exposure
Self-managed super fund trustees are increasingly using managed funds to diversify their portfolios beyond Australian equities, according to a new report.
Self-managed super fund trustees are increasingly using managed funds to diversify their portfolios beyond Australian equities, and two of Australia's biggest global equity funds appear in the top 10 investment holdings, according to a new report.
The latest Investment Patterns Survey, which analyses the accounts of more than 2500 SMSFs with $3.2 billion collectively under management, found that allocation to international equities increased from 13.1 per cent to 14.4 per cent in the year to 30 June 2018.
Managed funds continue to be the most popular vehicle for trustees to obtain international exposure, although ETFs are growing in popularity.
SMSF exposure to international equities
Source: SMSF Investment Patterns Survey June 2018, SuperConcepts
The research mirrors a wider trend percolating through the ETF industry with international equities dominating the largest category of inflows for the month of August, accounting for more than $312 million, according to the BetaShares Australian ETF Review – August 2018.
Two managed funds with exposure to global equities - Magellan Global Fund and Platinum International Fund - appeared in the 10 largest investments held by SMSF trustees. Both funds carry Morningstar Gold Ratings.
"Magellan’s high-conviction, risk-aware approach is one of the best in the market, and this strategy is an excellent option for Australian investors seeking exposure to international equities," says Michael Malseed, a Morningstar senior analyst in funds research.
Allocation towards Australian equities was similarly up, increasing from 35.4 per cent to 36.6 per cent over the year. Report author John Romanos says this is likely due to performance of the sector and inflow of new funds.
However, trustees are gradually reducing their exposure to the top 10 Australian listed companies, according to the survey, with investment down from 13.4 per cent during the June 2017 quarter to 11.9 per cent.
Trustees remain wedded to the Australian financial services sector - the big four banks ranking among the top 10 most commonly held investments. Biotech giant CSL (ASX: CSL) also made an appearance, reflecting the popularity of a stock that has overtaken ANZ Banking Group (ASX: ANZ) and National Australia Bank (ASX: NAB) to become the fourth-largest company on the ASX, by market capitalisation.
CSL is currently working on a "blockbuster" cardiovascular product that has the potential to take its stock price to $250, says Morningstar equity analyst Chris Kallos.
Most commonly held ($ invested) investments at 30 June 2018
Representing 13.6 per cent of total SMSF assets held
- Westpac Banking Corporation (ASX: WBC)
- Commonwealth Bank Ltd (ASX: CBA)
- Magellan Global Fund (15699)
- BHP Billiton Ltd (ASX: BHP)
- ANZ Ltd (ASX: ANZ)
- National Australia Bank Ltd (ASX: NAB)
- Platinum International Fund (4505)
- CSL Ltd (ASX: CSL)
- Wesfarmers Ltd (ASX: WES)
- Telstra Corporation Ltd (ASX: TLS)
Source: SMSF Investment Patterns Survey June 2018, SuperConcepts
Trustees retreated from cash and term deposits, with allocation dropping from 19.8 per cent to 17.3 per cent in the year to 30 June 2018, while fixed interest held steady.
Funds utilising limited recourse borrowing arrangements similarly dropped, from 17.7 per cent of funds at 30 June 2017 to 17 per cent today. Financial services giant AMP (ASX: AMP) has today joined the big four banks in putting the brakes on SMSF property lending, announcing the end of sales of its loan product SuperEdge from next month. Westpac, alongside its subsidiaries Bank of Melbourne, St George Bank and Bank SA, made a similar announcement to axe the loans in July, while Commonwealth Bank announced its withdrawal from the space earlier this month.
In an interview with Morningstar, SMSF Association head of policy Jordan George predicted the gradual exit of the big four would open the door further to other loan providers.
The Productivity Commission took aim at SMSF lending in its latest report on the superannuation sector, saying that while borrowing is "unlikely to pose a material systemic risk", active monitoring is "clearly warranted to ensure that SMSF borrowing does not have the potential to generate systemic risks in the future."
The Hayne royal commission also took aim at financial advisers who encourage SMSF trustees to invest in property where it is not in their best interests.
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