Bearish markets pushing SMSFs away from moderate asset allocations

SMSFs are switching away from moderate asset allocations to both more aggressive and more defensive allocations, in part due to bearish market expectations, according to new research.

The 2017 Vanguard/Investment Trends SMSF Report found that 114,000 SMSFs changed to a more defensive assets allocation in 2017, compared to 107,000 in 2016. The number of SMSFs changing to a more aggressive allocation also “grew strongly”, to 57,000, up from 37,000 in 2016.

“In 2017, SMSFs are becoming more focused on growing their nest eggs. Amid this shift in focus, investor appetite for exchange-traded funds (ETFs), and residential property continued to increase, while blue chip and high-yielding Australian shares were still high on the agenda for many trustees,” said Vanguard.

The 2017 report also found SMSFs were increasingly diversified.

“We’ve seen a gradual improvement in the diversification of SMSF portfolios over several years,” said Vanguard Australia Head of Market Strategy and Communications, Robin Bowerman. However there was still a “clear bias toward the local sharemarket and property”.

“This is understandable, given Australian’s long-held affinity with direct property investment and with the flow of franking credits from Australian shares. But by excluding less familiar asset classes like international shares and bonds, SMSFs are depriving themselves of some highly valuable opportunities for diversification.”

55% of SMSF trustees told the survey that they had over half their portfolio invested in one investment type, which was down from 60% in 2016.

The 2017 Vanguard/Investment Trends SMSF Report is based on a survey of over 3,000 SMSF trustees, 900 accountants and 470 financial advisers.

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