The report, based on a survey of more than 2,000 SMSFs conducted between February and March this year, found that many SMSF investors had started to increase their allocation to cash and alternatives.
It found one in five SMSFs acknowledged that the prevailing economic conditions have had a significant impact on their approach in selecting investments, while over a third of SMSFs indicated an increased allocation to cash and cash products.
Meanwhile, direct share investments saw the largest relative decline in most SMSF portfolios.
Of the SMSF survey respondents, 36 per cent said they had rebalanced their investment portfolio in the past year by between 10 per cent and 50 per cent. This resulted in their average asset weighting to direct shares declining from 36 per cent in 2022 to 31 per cent.
The primary reasons cited for this were that SMSF trustees had adopted a more defensive stance and had a negative outlook on overseas shares. More than a third of respondents said they intentionally increased their allocation to cash and had sold other assets for cash.
The report noted SMSFs members who were seeking more control over their investments are, in the main, buy-and-hold investors. When surveyed about the way they manage their SMSF investments, 24 per cent of respondents strongly agreed they buy and hold investments and a further 55 per cent generally agreed.
By contrast, 26 per cent of respondents strongly agreed or generally agreed they actively trade.
The Australian Taxation Office’s (ATO) latest self-managed super fund statistical report, released in May, shows SMSF investors had around $135 billion sitting in cash and term deposits at 31 March 2023. They also had around $261 billion invested in listed Australian companies.
Collectively, these two asset classes (Australian shares and cash) represented close to half (44.5%) of total SMSF assets at the end of March.
The ATO’s data shows that SMSFs controlled more than $889.5 billion in Australian and overseas assets, an increase of around $10 billion over the December 2022 quarter.
However, the total value of SMSF assets was still down on the peak level of $913.4 billion at the end of the March 2022 quarter – a reflection of the volatile trading conditions on global financial markets and the broad decline in listed and unlisted asset values over the past year.
In dollar terms, SMSFs owned just over $261 billion in listed Australian shares (the ATO records SMSF shareholdings in overseas companies separately) at the end of March. It remains the largest asset class segment for SMSFs.
“With the current unsettled economic landscape of high interest rates and inflation, capital protection remains a priority for most SMSFs,” said Balaji Gopal, head of financial adviser services, Vanguard Australia.
“It is typical to see increased allocation to defensive assets such as fixed income or cash products during uncertain times. With interest rates rising, the data suggests SMSFs are favouring assets that they see as low risk, with trustees now allocating 22 per cent of their assets to cash products.
Interestingly, while diversification, time savings and access to active management remain the primary reasons for SMSFs choosing to invest in managed funds, a growing choice driver is the ability to access specific sectors.
“Investing in managed funds provides investors with a powerful tool to diversify their portfolio without the high costs and risks associated with buying individual shares,” said Gopal.
This article previously appeared on Super Review’s sister title SMSF Adviser.
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