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Alex Ding
CommSec
CommSec’s latest SMSF Trading Trends Report looked at the key share trading for SMSF investors in the second half of the 2018-19 financial year. It was characterised by an overall slowdown in the global economy, largely driven by ongoing US–China trade conflict.
While the US economy remained in good shape generally, Chinese authorities acted to stimulate their economy to counter the effects of this slump.
Internationally, central banks have shifted their position on interest rate cuts to ward off a possible weakness in economic growth as inflationary pressure remained low.
Australia’s economy is currently growing at the slowest pace in nine and a half years, after activity slackened in the lead-up to May’s federal election. In an environment of low wages growth and low inflation, the Reserve Bank’s cash rate continues to fall to record lows.
Even with these challenges – and a subdued reporting season in the first half of 2018-19 – it has been a positive year overall for the key global sharemarkets. The second half of 2018-19 saw a sharp rebound, with markets approaching record highs.
These strong results suggest that investors are anticipating further rate cuts to stimulate economic growth.
For SMSF investors it has been a year of two halves as the focus of trading activity on the Australian sharemarket turned from buying to selling, with investors reducing some stock exposures and seeking additional diversification.
Unsurprisingly given the economic backdrop and the May federal election, SMSF investors remained cautious in the first half of 2019. SMSFs’ top 20 share holdings by value were largely unchanged and the average number of stocks held per SMSF fell slightly from 12.2 to 12.
However, that does not mean SMSFs were passively awaiting developments. Trading patterns suggest that some investors were tactically repositioning their portfolios, with a 15 per cent upswing in the total value of SMSF trades in the first six months of 2019 and a slight tilt towards selling. Selling accounted for 53 per cent of the total traded value over the six months, compared with an overall total of 51 per cent of trades in 2018-19.
A key factor in this shift appears to have been uncertainty over potential policy changes in the lead-up to the federal election. The financial services, telecommunications and materials sectors experienced the most net selling activity during the first half of 2019 in terms of overall traded value, with investors possibly concerned about the sustainability of dividends and imputation credits, as well as the effect of a slow housing market on bank profitability.
For individual stocks, 2018-19 proved to be a mixed year for the big four banks, along with major miners BHP, Rio Tinto and Fortescue. As trade values of these stocks rose in the first half of 2019, so did selling activity, reversing the buying trend of the previous six months.
Macquarie Group remained popular among SMSFs, with its share price climbing to a peak in May 2019, although by the end of June 2019 it has dropped closer to its value a year ago.
Overall, financials continued to be the dominant sector in SMSF portfolios, representing almost half the value of all holdings, despite some selling of the big four banks in the first half of 2019.
There was also increased selling of SMSF favourites A2 Milk and Telstra, with concerns over future earnings and dividends. Nervousness over the Chinese economy may have led some to wonder whether A2M could continue its impressive record of export growth.
In the event, both stocks defied the doubters, with A2M reaching new record highs in April, while telecommunications was the year’s best-performing sector on ASX, recording overall gains of 42.6 per cent.
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.
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.
About the author
Alex Ding, CommSec
Alex Ding is Senior Product Manager, SMSFs, CommSec
The CommSec SMSF Trading Trends Report is an in-depth exploration of the online trading behaviour of SMSF investors, released every six months. SMSFs are a significant investor segment, representing 30 per cent of all superannuation investments in Australia. This report is based on a detailed analysis of the trading behaviour of active CommSec clients between 1 January 2019 and 30 June 2019. The sample comprised a diverse cross-section of active share traders — defined as those who had traded at least once during the 12 months before the study period — including both SMSF and non-SMSF investors.
This report was prepared by Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (“CommSec”), a wholly owned, but non-guaranteed, subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 to provide general information. It is not intended to replace professional advice. This information has been prepared without considering objectives, financial and taxation situation or needs, before acting on it consider its appropriateness to individual and client needs. Consider seeking professional advice relevant to individual needs. CommSec will not be liable for any loss or damage as a result of the reader relying on this information. While potential SMSF investments may have been illustrated within this content, they do not represent a comprehensive suite of possible investment products and services within the guidelines pursuant to the SIS Act 1993 with ATO oversight.
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