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How SMSFs are staying ahead of the curve

Jessica Amir
September 30, 2020

Jessica Amir caught up with Investment Trends’ Research Director, Recep Peker to chat about the $733bn Self-Managed Super Funds (SMSF) industry.

Investment Trends, a leading financial services market research organisation, surveyed the SMSF industry from March to August, to see how they reacted to the pandemic and to determine what they’re planning on doing next.

In this video, Recep talks about:

  • (0:47) The top challenges for SMSFs
  • (2:06) What SMSF trustees are doing differently
  • (2:35) The defensive pre-pandemic position of SMSF trustees
  • (3:05) How SMSFs are taking advantage of discounted stocks
  • (4:00) What older vs. younger trustees are investing in
  • (5:25) How and why SMSF trustees are diversifying their investments like never before
Read Transcript

Jess: Hello I’m Jessica Amir, a market analyst with Bell Direct.

Well this year we saw stock market volatility peak and interest in the stock market subsequently peaked as well and among those who manage their own superannuation, the majority have said that they’re interested in increasing their contributions to superannuation, while also increasing their exposure to equities.

Now this is according to research firm Investment Trends.

And the director of research, Recep Peker, is here to tell us more.

Recep, thanks so much for your coming in.

Recep: Lovely to be here.

Jess: So of the SMSF survey that you’ve conducted, which was based around what investors are thinking, what were the most compelling insights that you found?

Recep: These insights are really interesting because as you know, SMSFs control $733 billion and they tend to be the more sophisticated and engaged investors and the big things coming through is essentially how are they managing their money right now.

As similar to most individuals out there, it is a challenging period.

You have half of SMSFs who say that picking investments right now, identifying the you know undervalued stocks to invest in the like is their top SMSF challenge.

This is up from about 40% who said that in the previous year and it compares to about 43% or 44% who say that keeping up to date with all the regulation and compliance and all that paperwork as the hardest aspect.

So you know the insights that are I think most interesting are around how they’re investing right now and what they’re planning on doing.

Jess: Despite that and despite the macroeconomic uncertainty we’ve seen a large increase in SMSF so investors are increasingly wanting to go it alone.

In fact, there’s been a 15% increase in SMSFs over the past five years.

So with that larger pool in mind, how are they specifically investing or what exactly are they doing differently?

Recep: For most of them they tend to be fairly engaged with their portfolios anyway, but what we’ve seen is a big jump in the proportion making changes to their investment allocation.

In the last year, 44% say they made changes, substantial changes to their portfolios.

If you look at the different segments of trustees, the high net worth SMSFs, those with more than $1 million in their trust, half of them say they made changes to their portfolios.

Jess: And sorry like what? So changes like?

Recep: Yeah so if you look backwards, most of them are saying they became defensive in the last six to 12 months because in the lead up to the pandemic, what we saw was that SMSF trustees were becoming increasingly bearish with the situation in the market.

The valuations that we had, the geopolitical tensions and the growing levels of debt meant that trustees came into a pandemic from a more defensive stance.

Jess: Yeah, so what are they doing now?

Recep: They’ve taken this opportunity to start contributing more to their trust and many of them are saying that they’re increasing their allocation to Australian shares and International shares and when you ask them about the next 12 months, like what will you be prioritizing as part of your investments?

There’s a greater growth focus in the market.

Of course the extent of this is defined by the trustees age for example, those who are aged above 65 are a bit more defensive or cautious than the younger trustees, but across the board we’re seeing more SMSFs say that they’re going to be prioritizing growth, maximizing growth in their portfolios more or finding a good balance of risk and growth.

Okay the share who are saying I’m going to be really conservative and focus on defending my assets has actually come up from where it was last year.

Jess: So what about those who are under the age of 40?

Recep: So we shouldn’t look at SMSF trustees as a whole because at the end of the day about 55% of SMSFs are still contributing into their trust, while the remaining 45% are either in full drawdown phase or partial drawdown phase, so the behaviour really varies.

And at the higher end, the older end, what you find is that trustees are focusing on quality stocks.

Over the last few years we had seen the appetite for blue chip shares fall in terms of where people want to put their money and instead there was a lot more appetite for high yielding shares, speculative shares and international shares and the like.

Now especially post COVID-19 there’s been a huge surge in demand for blue chip shares in these portfolios, partly possibly because of the great valuations that we have at the moment, you know trustees taking the opportunity to get into a market and the important thing is this reflects what professional financial advisors are doing with their client assets as well.

There’s this big focus on quality you know getting quality assets and quality managers in their clients portfolios.

Jess: And Recep your survey also found that when it comes to investing, the need for diversification or the desire to have a diversified portfolio has never been so high.

Tell us about that.

Recep: That’s exactly right.

So one of the key things that we’re finding is that SMSF trustees recognize that in such an environment, you can’t just get quality local stocks in your portfolio, you need to get a more diverse exposure.

If you go back to 2011 and 2012, when we had a lot of volatility in the markets and people were becoming more defensive, something that we saw was that SMSF trustees were actually ahead of the curve by about 18 to 24 months in growing their international shares allocation.

And what we’re seeing right now is that the appetite for international shares remains very high direct or you know internationally enlisted stocks.

In addition to that however, most SMSF trustees recognize that they don’t understand all the international markets that well them themselves and hence, they say let’s use different vehicles or investments to get a more diversified exposure to a broader market and here ETFs come and play a very prominent role and what we see is that the number of SMSFs who are invested in ETFs is now at a record level and there’s still a lot of appetite there from those who don’t invest in ETFs yet.

Jess: Well plenty of tips to stay ahead of the curve, Recep Peker thank you so much.

Recep: My pleasure thank you for having me.

Jess: And thank you for watching.

For more information, head over to Bell Direct’s website or contact your advisor.

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