A softening market outlook has led some trustees to adopt a more defensive investment position, with 21 per cent saying they rotated into defensive assets or increased their allocation to cash in the past 12 months. The rest have opted to remain calm and stay on course with their initial game plan. Because of this steadfast approach, the SMSF population continues to maintain a large allocation to equities.
Of their total investment portfolio inside and outside super, the average SMSF trustee allocates 58 per cent of their portfolio to equities, with 48 per cent in domestic equities and 10 per cent in international equities (see chart 3). SMSFs predominantly favour blue-chip ASX-listed stocks for their equities exposure, but ETFs are fast rising in popularity.
The average SMSF currently holds about 20 individual stocks in their portfolio, but they also realise the importance and benefits of diversification.
As more trustees have recognised the ability of ETFs to provide low-cost, diversified exposure to domestic and international assets, the number of SMSFs holding ETFs has more than doubled from 63,000 to 135,000 in the past five years alone. This growth makes ETFs the fastest-growing investment product in the SMSF sector.
Perhaps surprisingly, and despite their already significant exposure to equities, SMSFs want even greater exposure to equities. In the year ahead they would ideally like to increase their international equities holdings from 10 per cent of their portfolio to 16 per cent (see chart 3) while maintaining their allocation to domestic equities (48 per cent to 47 per cent).
Clearly, the desire for international diversification is strong among SMSF trustees. Because of their poor outlook for domestic stocks, more trustees are looking to offshore equities to satisfy their investment objectives on their journey towards retirement.
As we approach a new decade, retail investors – SMSFs and non-SMSFs alike – will be hoping for a smooth road ahead where global trade tensions are quickly resolved and negative interest rates do not become a local reality.
In the meantime, Australian investors will need to stay vigilant, balancing their subdued outlook with their need and desire to stay invested.