Philip LaGreca

Australian’s self-managed super fund (SMSF) trustees have turned their focus to international markets to realise more gains, after continued low interest rates deliver un-inspiring cash returns, according to the latest Multiport SMSF Investment Patterns Survey.

In the June quarter 2014, cash holdings in SMSFs reached a record low of 18.29 per cent, the lowest level on record since the quarterly survey began in 2007. Coupled with a record low-interest rate of 2.5 per cent since August 2013, cash remains a less attractive option for investors.

AMP SMSF Administration Head of Technical Services Philip LaGreca said the significant decrease in cash holdings has mainly flowed into the international property and equity sectors.

“International equities have performed strongly throughout the year and we’ve seen an increase in funds in this asset class, as more investors move their investments away from under-performing asset classes, especially cash,” Mr LaGreca said.

“The strong performance of exchange traded funds (ETFs) has proved a compelling option for investors and we’ve seen holdings in ETFs consistently increase over the past two years. Overall international holdings being held via ETFs is now 17 per cent, an increase of 1.9 per cent in the last quarter alone,” Mr LaGreca added.

There has been a continued preference for managed funds over direct investment due to the complications still present in investing overseas directly. As a result, allocation to managed funds continues to increase, now at 17.4 per cent.

While there has been an increase in international equities, the allocation of funds to Australian equities has been lower than expected over the past three quarters due to the performance of Australia’s top 20 stocks.

“Australian shares are still the most popular for SMSF trustees with close to 40 per cent (39.3) of all funds allocated to this asset class. However, over the past three quarters we’ve seen slight decreases in the amount of funds invested in Australian shares. This is largely due to the higher weighting in the top 20 local stocks, which have under-performed the All Ordinaries in the 2014 financial year,” said Mr LaGreca.

During the last quarter of the 2014 financial year, there was a significant increase in the contribution levels made by SMSF members. The average contribution inflow per fund for the June 2014 quarter increased 27 per cent to $13,750.
“Generally we see contribution levels climb in the last quarter of the financial year as members add to their fund in-line with contribution caps. However, the increase in contributions for the 2014 financial year is the biggest we’ve seen in more than three years.

“This increase is most likely the result of the increase in the concessional cap for members over age 59 to $35,000 compared to a cap of $25,000 applying to all ages for the previous financial year. The increase in the super guarantee from 9.25 to 9.5 per cent would have also increased contribution levels,” Mr LaGreca said.

Property remains a popular investment option for SMSF trustees, remaining at 17.8 per cent of all assets invested in the fund. However the number of funds who are currently utilising a borrowing arrangement has declined to 15.6 per cent, compared to 16.8 per cent the previous quarter. The average property loan amount for the quarter was $272,000.

The quarterly Multiport SMSF Investment Patterns Survey covers around 2200 funds, a sample of the SMSFs Multiport administers and the investments they held at 30 June 2014. The assets of the funds surveyed represent approximately $2.2 billion.

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Philip LaGreca

International equities have become more attractive to self-managed super fund (SMSF) trustees as historically low interest rates decrease the appeal of cash, according to the latest Multiport SMSF Investment Patterns Survey.

SMSF exposure to international equities increased by 1.6 per cent in the December quarter, driven by new funds flowing into the sector as well as the sector’s overall performance and decrease in the Australian dollar.

Cash has continued to decline to 19.1 per cent of total holdings, down from 24.5 only one year ago.

AMP SMSF Administration Head of Technical Services Philip LaGreca said low interest rates meant SMSF trustees were looking for new investment opportunities to provide good returns.

“The decrease in the cash sector during the quarter is the result of funds being moved into other sectors, specifically International Shares, which rose significantly in the quarter to 10.8 per cent,” Mr LaGreca said.

“Investment in Exchange Traded Funds in particular have grown exponentially in the international equities sector, and has more than doubled in 12 months to 1.6 per cent of total holdings,” Mr LaGreca said.

Asset allocation to Australian equities increased by just 0.1 per cent for the quarter, with the sector showing a decrease in the use of managed funds for the quarter, down 0.6 per cent.

Property holdings remained static over the quarter at 17.6 per cent, with direct property representing 14.1 per cent of the total sector allocation.

Out of the total number of direct properties held by the funds in the survey, commercial property represented 25 per cent of all property holdings and residential property accounted for 75 per cent of property holdings.

Average SMSF contributions for the December quarter increased from $9,417 for the September quarter to $10,829.

The Multiport SMSF Investment Patterns Survey covers just over 2000 funds, a sample of the SMSFs Multiport administers and the investments they held at 31 December 2013. Funds are administered on a daily basis which ensures data is based on actual investments and is completely up to date. The assets of the funds surveyed represent approximately $2 billion.

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SMSFs reducing their cash allocation.

Self managed super fund (SMSF) trustees continued to decrease their allocation to cash during the September 2013 quarter with lower interest rates making term deposits less attractive according to the latest Multiport SMSF Investment Patterns Survey.

AMP SMSF Administration Head of Technical Services Philip LaGreca said cash investments have seen an overall decline of 5.8 per cent on the September 2012 quarter, making it the fifth consecutive quarter it’s fallen.  Since the June quarter cash has fallen 1.1 per cent.

“Cash has continued to fall out of favour with SMSF trustees, mainly due to a decrease in short-term deposits, which have fallen 0.6 per cent over the quarter.

“As term deposits mature, the trend indicates they are not being rolled over as interest rates remain low and trustees look to other assets in search of higher returns.

“Hybrids have been a favoured way for trustees to seek yield this quarter, seeing an increase of 0.2 per cent on the previous quarter,” said Mr LaGreca.

Property remains a core investment, however overall allocation fell slightly over the quarter, from 18.1 per cent in the June quarter to 17.6 per cent.  Direct property is still the preferred option, accounting for 91 per cent of all SMSF property holdings.

“Around 38.7 per cent of all direct property holders had a borrowing arrangement in place, compared to 16.7 per cent of the total number of funds who have a borrowing arrangement, showing that gearing continues to be important for those who want to access direct property.  Overall though, property allocation is being out-stripped by growth in other sectors, mainly due to performance,” said Mr LaGreca.

While the overall allocation to Australian equities increased from 37.5 per cent to 39.4 per cent, this is in line with the increase in the market and is likely due to a relatively higher concentration of holdings to the top 10 Australian shares, which outperformed the All Ordinaries, rather than new investment.

Managed funds saw a fall of 0.9 per cent for the quarter, likely because managed funds are probably based on specific sectors rather than diversified and so not increasing in line with the index.

Mr LaGreca said: “Over the quarter we’ve actually seen a fall in allocations to international equities, when they should have gone up in line with the indices, suggesting some trustees have reduced their exposure as a result of uncertainties in the US market over the period.”

When it comes to accessing international holdings, 13 per cent were held via Exchange Traded Funds (ETF), which has continued to increase over the past few quarters.

The quarterly Multiport SMSF Investment Patterns Survey covers around 2000 funds, a sample of the SMSFs Multiport administers and the investments they held at 30 September 2013.  The assets of the funds surveyed represent approximately $1.9 billion.

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The quarterly Multiport SMSF Investment Patterns Survey analyses around 1,950 funds, a sample of the SMSFs Multiport administers, and the investments they hold as at 30 June 2013.  The assets of the funds surveyed represent approximately $1.8 billion.

AMP SMSF Administration Head of Technical Services Philip LaGreca said the cut in the concessional contributions cap has been reflected in the fall in the annual average contribution amount but SMSF trustees have not been passive in their investment choices.

“While overall contributions were down for the year, it’s clear trustees are actively managing their investments throughout the year.

“A significant amount of cash holdings moved into the fixed interest sector early in the financial year, with cash down almost 2.7 per cent and fixed interest up 2.6 per cent. The timing of these investments was heavily influenced by the reductions in official interest rates and sentiment about future movements and new capital raisings via bank-issued subordinated notes.

“The allocation to Australian shares was up 0.8 per cent to 37.5 per cent, slightly higher than expected from normal growth in the market.  This was mostly driven by the significant weighting that direct Australian shareholders have in the top 20 stocks, which outperformed the All Ordinaries,” Mr LaGreca said.

June quarter analysis

The decline in overall cash holdings continued for another quarter, with a 1.5 per cent drop to 21.9 per cent during the June quarter.

Fixed interest holdings were up 1 per cent to 12.2 per cent for the quarter and Australian equities holdings decreased by 0.6 per cent to 37.5 per cent, a smaller decrease than expected based on the change for the All Ordinaries for the quarter.

“Trustees generally make larger cash withdrawals prior to 30 June to meet minimum pension requirements for the year, but the continued downward trend for cash has more to do with lower interest rates making cash a less attractive investment.

“Trustees are moving cash holdings into the share market and fixed interest sector,” Mr LaGreca said.  ‘True’ cash is now approaching a level that would seem consistent with the common strategy for pension accounts, of holding cash equivalent to two or three years’ worth of pension payments,” Mr LaGreca said.

The average SMSF contribution inflow per fund doubled to $13,050 for the June quarter compared to $6,805 for the last quarter.   This is in line with the trend shown during previous years where large contributions are generally made during the last quarter of the financial year.

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