Download Myth: Lack of diversification in asset allocation

yes no Was this document useful for you?
   Thank you for your participation!

* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project

Document related concepts

Private equity secondary market wikipedia, lookup

Environmental, social and corporate governance wikipedia, lookup

Mark-to-market accounting wikipedia, lookup

Early history of private equity wikipedia, lookup

Internal Revenue Code section 1031 wikipedia, lookup

Socially responsible investing wikipedia, lookup

Adelaide Steamship Company wikipedia, lookup

Capital gains tax in Australia wikipedia, lookup

Private money investing wikipedia, lookup

Financial crisis wikipedia, lookup

Investment management wikipedia, lookup

Myth: Lack of diversification in asset allocation choices
Lack of diversification in asset allocation choices of SMSF trustees has long
been the cry of those critical of this sector – too heavily weighted to Australian
shares and cash. Many have gone further and claimed that lack of
diversification within asset classes is of equal concern. SMSF trustees loading
up on bank stocks, for example, is a common misconception. Fuelling the
property bubble in the residential home market has also been levelled at SMSF
trustees (with the added claim more recently, of using excessive gearing to
achieve this). Inexperience with investment markets, comparative lack of
access to data compared to “professional investment experts” and
susceptibility to scammers are all raised as problems with the SMSF sector.
You can’t help but feel that SMSFs must be responsible for all the problems
besetting the whole of the Australian investment markets with this sort of
track record, if it is true!
Where do SMSF trustees really invest their money?
You need go no further than Australian Tax Office (ATO) statistics to see where
SMSF trustees as a collective group invest their money. Interestingly, the
percentages of SMSF total assets invested in different asset classes has not
varied significantly over the years, despite the growth of the sector to the
largest single superannuation arrangement chosen by members in Australia.
For the year ended 30 June 2016, SMSF assets totalled $622 billion. The
percentages in each asset class were shown as follows:
Australian listed shares – 30%
Australian residential property – 4%
Australian commercial property – 11%
Cash & term deposits – 26%
Overseas investments in total – 1%
Listed & unlisted trusts & other managed investments – 19%
Debts & loans – 2%
Other investments – 7%
The year ended 30 June 2011 told a similar story. Assets totalled $402 billion in
the SMSF sector. The percentages breakup of the same asset classes were:
Australian listed shares – 31%
Australian residential property – 3.5%
Australian commercial property – 11.5%
Cash & term deposits – 28%
Overseas investments in total – 1%
Listed & unlisted trusts & other managed investments – 18%
Debts & loans – 1.5%
Other investments – 5.5%
These figures show that, as a group, SMSF trustees have consistently invested
in asset classes they are comfortable with and asset classes they can easily
access directly.
These figures show that, while there may be a bias to Australian investments,
lack of diversification across asset classes generally is not an issue. It should be
noted that traditionally exposure to international listed shares and property
has been achieved by way of unlisted trusts and managed funds. There is likely
to be additional exposure to these international asset classes in the “listed &
unlisted trusts & managed investments” category totalling around 18 - 19% of
total SMSF assets, where further breakdown of data is not available.
The returns they have achieved also speak for themselves. Based on ATO
statistics, for example, for the 8 years from the 2007 financial year to the 2014
year, SMSF returns outperformed large funds for four of those years. While in
recent times, the predominant asset allocation of SMSF trustees has not
performed as well compared to alternatives, it is still within reach. APRA
statistics for the 2015 financial year, for example, show the return for SMSFs
after expenses (excluding contributions) to be 5.7%. This compares to nonSMSF returns of 8.5% for the same period.
These returns do not support the suggestion that SMSF trustees are
dangerously out of their depth and incompetent in investing their members’
superannuation balances.
Equally, the notion that SMSFs are fuelling a bubble in the residential housing
market is not supported by the facts. As at June 2016, SMSFs have invested
around $24 billion in residential property, just 0.4% of Australia’s $6.04 trillion
residential property market. This amounts to a statistical error rather than an
investment push distorting numbers!
The same can be said for the claims of the use of limited recourse borrowing
arrangements to add speculation to this investment into property. The total
borrowings in SMSFs as at June 2016 was just over $21 billion or just over 3%
of total SMSF assets. SMSFs are neither highly leveraged nor is there any
suggestion that the entire borrowings in SMSFs are being used to acquire
residential property alone. Commercial property and listed share purchases are
well represented in the assets acquired using these gearing arrangements as
well. For more detail on property myths and SMSFs see our other article titled
“Myth: SMSFs are overexposed to property and are driving a housing price
For more comprehensive SMSF education and resources, visit the Trustee Knowledge Centre.