Australian Financial Review
10 August 2016
Sharemarket volatility has hit self-managed superannuation fund trustees’ confidence in their ability to select investments.
Self-managed super schemes anticipate they will invest less in blue chip shares and high yielding shares over the next 12 months, but expect to tip more of their savings into professionally managed funds, a survey by research company Investment Trends and fund manager Vanguard found.
The change in investment intentions is linked to self-managed fund members’ pessimistic outlook for equity returns over the next year. The study found that trustees had reduced their return expectations for the local market to 2.8 per cent in March from 6.6 per cent a year ago.
“It is becoming harder for trustees to select investments because of the volatility. They feel they can’t do it as well because of the uncertainty. They feel less confident about doing it themselves,” said Recep III Peker, head of research for wealth management at Investment Trends.
The increased self-doubt is perhaps not a surprise, given that 28 per cent of self-managed funds said that more than half of their portfolios were invested in financial shares, which have performed poorly thanks to rising capital requirements and sluggish economic growth.
In the biggest change in investment intentions since the global financial crisis, 55 per cent of do-it-yourself scheme trustees said they intended to invest in blue chips over the next 12 months, down from 65 per cent who had that intention a year ago. The proportion of fund members who expected to invest in high-yield shares and exchanged traded funds (ETFs) fell to 24 per cent and 18 per cent respectively, down from 32 per cent and 20 per cent.
On the other hand, the proportion of funds expecting to invest more in managed funds, including those covering the domestic and offshore markets, rose to 17 per cent from about 14 per cent last time.
“Investors are a bit more bearish than they used to be but they are still thinking about the long term. They want to rely on professionals more. Anyone who gives advice to self-managed funds on the investment side has got a great opportunity right now to benefit from this market volatility,” said Mr Peker.
Mr Peker said it was the first time since 2008-09 that demand for ETFs had fallen, although he said the market remained healthy. Some 90,000 self-managed funds hold ETFs, up from 54,000 in 2014.
Investor nerves about the market were also apparent from the change in their asset allocations over the past year. The weighting of direct shares in self-managed portfolios slipped to 38 per cent in 2016, the lowest level for six years. Cash holdings sat at 25 per cent of the average portfolio, the highest level since 2013.
Self-managed fund trustees, according to the survey, were most worried about a slowdown in China and another global financial crisis. The two issues where concerns rose compared to a year ago were a China slowdown and a rise in Australian debt levels. Investment Trends and Vanguard found that the proportion of self-managed fund members who consider themselves to be ‘self directed’ fell to 42 per cent, down from 54 per cent last time. The proportion of trustees who use an adviser to validate their ideas increased to 48 per cent from 35 per cent.