Concentrate – But Not In Your Portfolio

By Robin Bowerman | More Articles by Robin Bowerman

A thought-provoking exercise for self-managed super fund (SMSF) trustees is to compare their fund’s asset allocation to those of the balanced portfolios of Australia’s biggest super funds.

In many cases, this comparison will often show significant differences in the asset allocations. Often those differences are quite stark.

A typical balanced portfolio of a big institutional fund is spread between at least the main asset classes of Australian shares, international shares, fixed interest, property and cash – with infrastructure often adding to the mix.

The 2017 SMSF/Vanguard/Investment Trends Self Managed Super Fund Reports, released in August, report that 55 per cent of SMSF trustees surveyed have more than half of their portfolio invested in one investment type (outside managed funds).

Of these SMSF trustees with such concentrated portfolios:

  • 35 per cent have more than half of their SMSF assets in Australian shares.
  • 7 per cent have more than half of their SMSF assets in residential property.
  • 9 per cent have more than half of their SMSF assets in cash and cash products.

Australians, of course, have had a long-held affinity to direct property investments. And the franking credits from Australian shares are highly attractive to investors – including to yield-focussed retirees.

However, SMSF trustees who do not invest in perhaps less familiar asset classes to them like international shares and bonds deprive themselves of valuable opportunities to spread their risks and rewards.

An SMSF with a highly-concentrated portfolio will have very different risk-and-return characteristics to a big fund with a balanced portfolio.

An appropriate strategic or target asset allocation takes into account each investor’s risk tolerance, time horizon and financial goals. Does your SMSF’s asset allocation do this?

Robin Bowerman

About Robin Bowerman

Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.

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