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What these Self-Managed Super Funds are buying

Photo of Andrew Ward, SelfWeatlh By Andrew Ward, SelfWeatlh

min read

Greater interest in small-cap stocks, but will it continue?

The earnings seasons has just concluded, the Australian dollar is on the way up, and investors are still trying to get their heads around what could be one of the most tumultuous foreign affairs environments in decades.

But what do the numbers say?

We have conducted an analysis of data in the SelfWealth platform for the first half of the year, focused on the $621-billion self-managed superannuation fund sector. We see a continuation of some key trends, and some others that investors should keep an eye on.

Interest in property wanes

This time last year we saw greater interest in the healthcare sector, mainly because of some strong investor sentiment in large-cap stocks such as Medibank Private and Sonic Healthcare. At the same time, we also saw a small drop away from real estate and the exchange-traded products sector, and a move towards small-cap stocks.

Real estate investments had suffered a decline of 2.4 per cent in the 12 months to October 2016. That trend has stabilised with just 0.04 per cent growth, which is a reflection of the current sentiment surrounding the property market.

Only a few months ago the Reserve Bank signalled it would start pushing into an environment of higher interest rates and raise credit reserve requirements for financial businesses. Given the vast majority of Australia’s mortgages are variable rate loans, any fluctuation in interest rates would hit a significant amount of the population, including anyone who recently purchased property at the top of the market.

The stabilised investment in real estate suggests, at the very least, this is one market where interest will continue to remain subdued.

Health and consumer staples on shaky ground

Materials is another area where falls have stabilised, dropping just 0.17 per cent since the beginning of the year, although the decline is still noteworthy.

The larger falls were in some key areas: industrials, consumer discretionary spending, consumer stables and healthcare in particular, falling 0.34 per cent since April.

It is curious that healthcare would suffer a fall after such a positive period, but it should be noted the previous year’s gains were mostly dominated by one-off events.

As mentioned in our 2016 update, Medibank Private and Sonic Healthcare provided some buoyancy, but the healthcare market is constantly evolving and concerns about individual providers, particularly Medibank’s falling share price, may have caused some decline.

Consumer confidence suffers a blow

Another main takeout from our analysis so far is that consumer confidence seems to have taken a hit in 2017.

This is not a surprise to anyone who watches the news, but it is sobering to see just how much impact the rest of the world can have on discretionary spending, especially in an environment of low interest rates.

The consumer discretionary sector fell by 0.36 per cent in our analysis since January, (although it has only fallen 0.07 per cent since April), with consumer staples falling by 0.3 per cent since April alone.

It is often hard to account for fluctuations in consumer confidence, given the relatively stable job and interest rate environment.

The Westpac Consumer Sentiment survey, for instance, has flagged negativity since the beginning of the year. Volatility and dire news from overseas has depressed capacity for spending, although the July result was slightly more optimistic.

Altogether, the survey’s pessimists have outnumbered optimists for the eighth consecutive month. However, given SMSF investors are usually averse to risk, the coming higher interest rates may see a resurgence in consumer staples and that trend reversed.

Top 10 SMSF stocks

The top holdings by SMSFs on the SelfWealth platform have not changed much in the past and the same is true today.

The banks continue to dominate in the top 10, although ANZ moved from third to second place in the rankings. Westpac suffered a sizeable decline from second to sixth, although the stock has never been below that ranking as far back as October 2015. Will next quarter see Westpac drop any lower?

Westpac’s decline means National Australian bank has jumped a setting higher, but once again, the top 10 blue-chip stocks on the SelfWealth platform have not changed much. The lack of such a change might bring some weight to the criticism that SMSFs need to diversify their holdings, with too many concentrated in the financial sector, particularly localised financial stocks.

Here are the top 10 small cap stocks held by SMSF in July, based on Self Wealth data.

SCP - SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP
MTS - METCASH
IVC - INVOCARE
PTM - PLATINUM ASSET MANAGEMENT
BWP - BWP TRUST
MND - MONADELPHOUS GROUP
REG - REGIS HEALTHCARE
WOR - WORLEYPARSONS
MYR - MYER HOLDINGS
LYC - LYNAS CORPORATION

Moving forward
Given the volatility so far this year, both at home and abroad, it is clearly difficult to suggest what investment trends we might see from SMSFs.
Last year we said SMSFs had taken on some more risk by investing in small-cap funds. Given rising interest rates, we may very well start to see a shift away from some of those riskier investments and into safer options.
 

About the author

Andrew Ward is the founder of SelfWealth, a leading social network for investors. A former head of private wealth at CBA, he has more than 20 years’ experience in the financial services industry. SelfWealth empowers investors by enabling them to compare their portfolios with peers, professionals and the market.  With SelfWealth TRADING there are no commissions or additional fees, just one low fee of $9.50 per trade regardless of trade size.

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