Retirement
Is asset concentration the biggest threat to SMSFs?
An expert has warned self-managed super fund (SMSFs) members not to overload their portfolio with large Australian companies.
Is asset concentration the biggest threat to SMSFs?
An expert has warned self-managed super fund (SMSFs) members not to overload their portfolio with large Australian companies.
In conversation with nestegg, Pinnacle Investment Management Group director Chris Meyer explained how SMSF members would benefit from diversification in global assets.
“There is a lot of opportunities that they can invest in outside of Australia that gives them as good dividend yields,” Mr Meyer commented.
His company, Pinnacle Investment, argues Australian investors have the highest home country investment bias in the developed market world, with as much as 75 per cent of their portfolio in shares.
The ASX makes up just 3 per cent of global equity markets.
According to Pinnacle, this means an overweighting of more than 70 per cent of investments by SMSF investors into local shares, compared to comparative investors in North America (just under 30 per cent) and the UK (just over 40 per cent).
“Every country has a home country bias because you invest with what you know. There’s a level of familiarity that gives people comfort,” the director commented, but he did flag that Pinnacle has found that the big four banks and BHP make up the top five holdings of many Australian SMSF portfolios.
How should SMSFs manage their superannuation?
Mr Meyer outlined that younger investors traditionally want stronger growth, while older investors are looking for yield, but it does depend on the investor’s personal risk appetite.
“Without knowing the individual’s risk appetite, early in your life you want your portfolio to be growing, and later in life when you’re living off the [fund], you need it to produce income,” Mr Meyer explained.
While fund managers are often involved in the managing of SMSFs, Mr Meyer urged any members to invest based on their own personal risk appetite.
SMSFs and emerging markets
On the topic of emerging markets, Mr Meyer noted that younger members who are risk-averse might not be able to tolerate the volatility of emerging markets, despite typically risk profiles in that age group.
“What you don’t want to happen early in your investing career is to get so-called ‘burnt’, and you don’t end up investing, that’s a much worse outcome,” Mr Meyer said.
However, Mr Meyer did reiterate how investors can benefit from diversification when setting up their portfolios.
He quoted Warren Buffet, noting that “diversification is the only free lunch”.
“What [individuals] should be doing is diversifying their portfolio with fund managers who offer diversification opportunities or just regular ETFs,” Mr Meyer concluded.
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