The annual Vanguard / Investment Trends Self Managed Super Fund (SMSF) Report, released this week, reveals the continuing growth in both the number of SMSFs being established and the growth of the assets within the sector.
Speaking at the release of the survey report, Eric Blewitt, Chief Operating Officer for Investment Trends, said “For the first time since this survey started in December 2005, the average SMSF balance reached over $1 million in April 2012. SMSF investors with over $1 million now control approximately 70 per cent of the total SMSF assets in Australia.”
“Strong growth in this sector continues with the establishment of new funds running well above the five year trend. This report shows the main driver for this growth is the desire for investors to gain control of their portfolio, coupled with an effort to save money on fees,” said Mr Blewitt.
The so called ‘wall of cash’ has also continued to grow; now representing 28 per cent of total average holdings at $130 billion. This figure includes $49 billion in ‘excess cash’ which is described by SMSF investors as money that, due to market volatility, is currently in cash but would otherwise be invested in other types of assets.
A need for control and immense pressure on fees are cited in the report as the main reasons for the decision not to use financial advisers and are also the major factors in the decline in use of managed funds. Overall the use of advisers declined 9 per cent since the last survey.
Commenting on this, Vanguard’s Head of Corporate Affairs and Market Development, Robin Bowerman, said “We see that investors, particularly in the SMSF sector, have become much more attuned to the fees they are paying. They are also more engaged in the makeup of their portfolios since the global financial crisis.
“Higher volatility and lower returns have focused investors on the things they can control within their investment portfolio,” said Mr Bowerman.
“We see opportunities for advisers in adapting to the way this sector tends to value advice, which is to use advisers as a sounding board for decisions and in a coaching role, rather than the traditional role of setting the product choices for the whole portfolio,” Mr Bowerman added.
“Bucking the negative trend in traditional managed fund investments was the modest growth in the use of ETFs, with more SMSF investors who already own ETFs planning to invest in more; and a growth in new and expected investment for investors who don’t currently own ETFs,” said Mr Blewitt.
The report shows that half of all investors using ETFs now do so through their SMSF with 33,000 SMSF investors now having ETFs in their portfolios. The ETFs showing the greatest usage in the SMSF sector were broad market international and Australian sharemarket ETFs.
Diversification, low cost and access to overseas markets were the most common drivers of ETF investments.
While blue chip shares remained dominant in most SMSF portfolios, investor sentiment and confidence in the sharemarket has driven an increased focus on defensive allocations with franked dividends, capital preservation and income being sought in current and future investment choices.