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I manage a small family SMSF which has been moving along quite nicely at 9% & 7.8% over the last two years. It is not shooting the lights out, but only giving the occasional heart palpitations. This is no doubt due to some sage advise from your publication and a fairly well balanced portfolio, save for the absence of meaningful positions in energy [apart from a minute interest in WPL ] and to a lesser extent utilities. Due to hard lessons learned in years gone by in these sectors, I will never have the intestinal fortitude to have anything more than a modest participation in these sectors.
As a result of tidying up of the portfolio in recent we have funds awaiting redeployment. I seek your thoughts as to whether we may have missed the boat or can you suggest a sock that may be suitable for each sector. Are we better to perhaps to stick to our knitting and not worry about creating the theoretical perfectly balanced portfolio?
I would be very interested in your thoughts.
Thank you.
A: Thanks for the question.
I don’t think that there is any need for you to have an exposure to every sector, particularly when the sectors are fairly small. Utilities accounts for only 2.7% of the index (by market weight), while Energy comes in at 4.1%.
Arguably, you can get indirect exposure to these sectors through other sectors. For example, low interest rates are a pretty driver in Utilities – you can find monopoly style assets, with annuity style income streams, that are very leveraged in companies like Sydney Airport or Transurban, both classified as Industrials. While Energy is a little different because the oil price is such a driver, BHP (for example), which is classified as Materials, is big producer of oil and gas.
If you do want some exposure, I would suggest Woodside or Oil Search for energy (the latter is more pure play, but also carries PNG sovereign risk and is arguably riskier). In Utilities, AGL has had a terrific run, but now getting very expensive.
Bottom line – stick to your knitting (unless you are very bullish on the oil price).
Regards
