SMSFs move markets

Editorial director of Switzer
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Interim reporting season is almost over and even if the results across the board haven’t been that earth-shattering, one of the things that companies have been trying to do is preserve dividend payments.

They know that in this lower interest rate environment, a large percentage of their investors are probably SMSF trustees seeking yield.

“I think the big story generally for companies is, if they want to maintain their investors, they have to try as much as possible to maintain their dividends,” Assyat David director at strategy advice group Strategy Steps says.

Income seeker

Anecdotally some analysts are saying that SMSFs may be behind the recent rise in the share market past 5000 and we all know trustees are always on the lookout for a good yield stock.

SMSFs now account for 31.5% of total superannuation assets of $1.5 trillion so their influence is not insignificant, and with a large percentage of assets under management sitting in cash up until the end of last year, it wouldn’t be surprising if they had managed to move markets, so to speak. CoreData recently conducted some research for Russell Investments and the SMSF Professionals Association of Australia (SPAA) and they found that trustees had cash allocations of 33.9% in 2012 compared to only 25.6% in 2011.

“What’s actually happening is a lot of SMSFs – the majority of them – are thinking about getting into the market again,” David says.

“They are being attracted to some of the yields you can get in shares. I think that high yield attractiveness story has been around for a couple of years.”

Trustee habits

CoreData also asked trustees with cash allocations of 10% or more for their reasons for their current allocation. The majority still said they were waiting for a better investment option – 45.7%, or they wanted to reduce their risk – 32.4%, but those percentages were down on previous years. In 2011 those numbers were 44.3% and 48.9% respectively and in 2010 they were 52% and 47.6%.

The volatility of equities was an important factor in 2011 at 32.4% but not so much in 2012 when it had dropped to 21.8%.

What was interesting, and which may also be indicative of more SMSFs about to increase their equity allocations, was the percentage of people who said “I haven’t had time to invest my cash but I plan to do so over the coming year”. That was 6.3% in 2011 but had risen to 15.4% in 2012.

SPAA’s director of education and professional standards, Graeme Colley, says that at least anecdotally they are hearing of more SMSFs boosting their equity allocations.

“From what we know and talking to our members, mums and dads are getting back into the market,” he says.

But he also points out that SMSFs have large allocations to shares anyway.

According to the ATO SMSF data for December last year, SMSFs had 31.6% of their assets in listed Australian shares, or $150.1 billion. That was up on the 29.3% of assets, or $119.9 billion the previous December.

The ASX’s market capitalisation today is $1.4 trillion, which means that SMSFs account for over 10% of the market – a not insignificant force to be reckoned with.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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