One of the most critical challenges for SMSF trustees is to set an appropriate asset allocation for their portfolios – including their exposure to overseas shares.
And when making their asset allocation decisions, informed SMSF trustees would typically want to know how much other super funds, large and small, are allocating to overseas shares.
Super fund researcher SuperRatings reports* that the large APRA-regulated funds with balanced portfolios had an average strategic asset allocation to international shares of 27.9 per cent at the end of June. (This percentage is edging up near their holdings in Australian shares.)
Unfortunately, the statistics for the average holdings of SMSFs in overseas shares can be somewhat elusive and easily misunderstood.
The recently-published Self-managed super fund statistical report – June 2015, reports that the SMSF sector had $1.8 billion of its assets as at June 30 in a classification described as "overseas shares". This dollar amount equates to less than half a percent of total SMSF assets.
Yet it would be incorrect to assume that SMSFs have such a miniscule average allocation to overseas shares.
The ATO’s classification of "overseas shares" does not include those held in Australian-based index funds, Exchange Traded Funds (ETFs), actively-managed funds and listed investment companies.
In reality, few Australian investors, including SMSFs, invest in overseas shares directly. Instead, Australian investors strongly favour the wide diversification and convenience of global investment funds.
A few months ago, the online investment newsletter Cuffelinks had warned about the possibility of mistakenly believing that the ATO’s statistics give the full exposure of SMSFs to overseas shares.
SMSF administration services firm Multiport calculates in its latest-available SMSF Investment Patterns Survey that a large sample of 2250 client funds held an average of 14.4 per cent of their assets in international shares, as at end of March. (A report for the June quarter is being released in the next few weeks.)
Significantly, Multiport’s statistics take account of overseas shares held directly by SMSFs and through ETFs and managed funds.
Another point to think about is that SMSF trustees tend to be highly individualistic, of course, in regard to the asset allocations of their portfolios. While some SMSFs would hold an exposure to overseas shares that is similar to the average for the large balanced super funds, others would have little or no holdings offshore.
In coming weeks, Smart Investing will take a closer look at the role of international shares in well-diversified investment portfolios – held inside and outside super.
 |
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
|
