SMSFs look abroad
22 February 2015
When it comes to investment choices, the Australian market is becoming crowded. The pool of superannuation is now over $1.8 trillion, which is larger than the Australian stock market. The Australian housing market is, at the very least, extremely strong, if not overheated, and interest rates on term deposits are at historical lows.
It does suggest that the investment options in Australia require very close examination. According to Andrea Slattery, chief executive of the SMSF Association, SMSF trustees are "starting to look for growth again." Speaking at the SMSF Association's annual conference, she said when it comes to looking for more options, SMSF trustees are "first to market again."
"(There is a view) that SMSFs are apathetic, they are not engaged. The truth is totally the opposite. They are engaged and they are in control. And they are looking more into international markets."
Slattery says SMSFs are also looking to infrastructure options to diversofy their portfolios. "There is also an encouraging need for professional advice." She says the Association advocates the maintenance of high professional standards and that trustees pursue diversification.
Recep Peker, a senior analyst for Investment Trends, said the "appetite for growth is slowly returning" and there is a great focus on looking for a capital return. The biggest concerns for SMSF investors are the slow down in the Australian and Chinese economies. He said sentiment started to change in 2013, but stayed steady in 2014.
"The key word that resonates now is diversification," he said. "The average SMSF only holds 18 stocks."
Peker says the general investment community lagged SMSFs by one year in turning to the international markets, who began looking abroad in 2012. He says it suggests SMSFs are focused on their investing. "The appetite for international is back. They are using (Exchange Traded Funds) and (Listed Investment Companies). The use of hybrids has stalled."
Grant Kennaway, head of fund research for Morningstar, said SMSFs are looking to build a sustainable income stream and balance that with the pursuit of capital growth. He said there is growing interest in investing in well known US and European companies.
"They are increasingly looking to invest directly in those companies. They know the brands and they are very comfortable. And they now have the ability to directly invest in those foriegn names."
There are perceived problems with looking offshore. SMSF investors are wary of the currency markets. This seems to be the case even when the $A is high. Peker says the anxiety about currency volatility was strong even when the $A was over $1.05 to the US dollar, when there was a far greater likelihood that it would fall, giving Australian investors that invested offshore offshore a windfall. With the Australian dollar now below 80 cents, the possibility of currency volatility remains a concern.
Another area of great interest is infrastructure investing, according to Slattery. She says the SMSFA is working with government to "unlock barriers" to infrastructure investments. "We need large investors to open themselves to retail clients," she said. "It is a bit hard to do that when the minimum investment is half a million dollars.
"SMSF investors like to invest in things they understand." She said government infrastructure bonds could support an income stream in the retirement phase. There are discussions about developing unit trust structures with units of $10,000.