Where are SMSFs putting their money?

Where are SMSFs putting their money?

Alex Burke

Now that the new CommSec SMSF Trading Trends Report is out, you might be wondering what the SMSF sector has been up to lately.

The report analyses the trading behaviour of active CommSec SMSF clients between July and December 2018 and reveals some key trends. First, it notes the backdrop of declining investor optimism, which is attributed to multiple macro factors including US-China trade tensions, Brexit deadlock and rising US interest rates.

“This coincided,” the report continues, “with an emerging view that markets were overvalued, particularly the US technology sector, exemplified by the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google.”

Despite the bleak outlook, though, SMSF investors managed to turn challenge into opportunity.

The blue-chip bargain

The report notes that many investors reacted to market downturns by buying quality stocks “that are often thought of as expensive, but which have been caught up in the general downturn.” This was reflected in the trend of investors moving away from the top 20 ASX stocks starting to slow over the period.

In fact, the report highlights that the proportion of SMSFs holding ASX 20 stocks (32%) is higher than the non-SMSF sector (28%). The final calendar quarter of 2018 provided, the report says, “the opportunity for SMSFs to buy into some of Australia’s most respected blue chips at prices significantly lower than the market peak.” These included CSL, Macquarie and Cochlear.

Low-cost diversification

Another key trend in the SMSF sector is the use of exchange-traded funds (ETFs) and listed investment companies (LICs). The report notes that the number of SMSF investors with at least one ETF increased by 13% over the six months to December 2018.

These investments weren’t just in ETFs and LICs that invest in global equities, but also foreign currency, fixed income, property and high-interest cash.

Wrapping it up

The report concludes by acknowledging 2018 was a “challenging time for SMSF investors,” but said “with challenges came opportunities that many SMSFs happily seized. The widespread sell-off saw a number of well-respected companies suddenly become cheaper and more attractive.”

Time will tell as to whether these trends continue.

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