Hunt for yield continues
As many SMSFs reduced their holdings of individual stocks, investors also sought diversification to protect themselves from market volatility and secure sustainable yields for the longer term.
Exchange-traded funds (ETFs) and listed investment companies (LICs) continue to be seen as useful diversification vehicles for SMSFs, despite a fall in trading activity and value for ETFs during the first half of 2019.
In 2018-19, SMSFs were net buyers of ETFs and LICs by traded value, with buying accounting for 58 per cent and 52 per cent of total traded value respectively.
Meanwhile, global diversification continued to be an investment priority for SMSFs in the first half of 2019. International funds represented 48.8 per cent of the traded value of ETFs, steady from 48.9 per cent in the previous half-year.
There were also strong net buys for ETFs with US share exposure, especially those tracking the NASDAQ index, along with funds offering global share exposure, such as the Vanguard MSCI Index International Shares ETF.
LICs also remain popular among SMSFs, with a 6 per cent increase in total traded value. For the half-year period, the total LIC buy value rose by 8 per cent, while the total sell value was up 3 per cent.
Summary
The 2018-19 financial year proved challenging for many investors, particularly in the first six months. Amid political uncertainty at home and overseas, SMSF investors continued to monitor a subdued economic environment while exercising caution in their trading activities.
Tepid US–China relations and a slowdown in global economic growth are likely to stay front of mind for many investors, along with local concerns over the effect of interest rates on household spending and the property market.
Despite the challenges, new investment opportunities arose as sharemarkets bounced back in the first half of 2019 and the S&P/ASX 200 and S&P 500 both approached all-time highs (since achieved).
Also, with Australia’s federal election behind us, concerns over domestic policy changes that could affect SMSFs appear to have dissipated.