by Olivia Long

Nothing is better guaranteed to rile me than someone from the “top end of town” describing SMSF trustees as “hick investors”. These supposedly sophisticated lads (they are invariably male), with their Pierre Cardin suits and flashy Rolex watches, seem to think all the collective investment wisdom resides in Collins Street and Pitt Street.

One would have thought that the Global Financial Crisis, and the trail of destruction that left across the institutional markets with fund managers caught long, would have taught them a little humility. Alas, it seems not.

It’s these fund managers, no doubt more than a little peeved that SMSFs are opting less and less for managed funds (even hicks can work out that poor performance and high fees are hardly an attractive investment option), who have coined the term “selfies” to describe trustees and portray them as two-trick ponies – cash and fully franked blue chips.

So when I picked up a copy of a new investment Trends/Morningstar report, titled ‘SMSF Investor Product Needs Report’, which draws on a survey of 2681 investors with an SMSF and examines investment trends in the six-year period from 2009 to 2014, I allowed myself a slight chuckle. Once again the myths that are paraded as facts about SMSFs were exposed.

These myths, if they held any validity, would surely suggest that in these volatile times, SMSF trustees would be looking to capital preservation and frantically searching for yield. Now would not be the time for trustees to be lifting their heads above the investment parapets.

But it seems they are. They are not throwing caution to the wind (and nor should they), but they are increasingly refocusing on growth assets, including looking offshore to find investment opportunities. This last point was particularly interesting, because if it’s one investment class that SMSF trustees have avoided like the plague, it's offshore assets.

There has been good reason for this, mind you, such as difficulties accessing these markets, plus other issues such as currency volatility, but now they are indicating a willingness to put their collective toes in overseas investment waters.

So what were the main findings of the research?

  • 23% of respondents declared ‘maximising capital growth’ as their main investment goal over the next year, the highest number in the past six years. In 2011, having a growth priority dipped as low as 14%;
  • 32% of SMSF investors wanted to balance growth and manage risk in 2014, the second highest number over this six-year period (it stood at 34% in 2013);
  • 33% wanted to build a sustainable income in 2014, the lowest number over the past six years. In 2011, this was the main priority of 45% of SMSF investors.

The research also examines the distribution of discretionary investable assets of SMSF trustees, and shows that the trustees have half of their wealth outside their SMSF. That means about one million trustees have a combined wealth of $1.5 trillion, a sum that the professional advisory community should have tattooed across their collective forehead. Why? Because if you get your service offering right, there is a well-endowed client base thirsty for good advice.  

But I digress. As I said, the SMSF trustees’ “cautious optimism”, as the report calls it, shows them moving in search of overseas investments. This is, in part, driven by a smart diversification strategy, as well as the difficulty in identifying domestic investment opportunities.

SMSF trustees have the most exposure in the North American market - 22% investing in the US as opposed to the 12% in Asia - a reflection in the growing confidence in the US economy. I also suspect many trustees remain wary of Asia, still unsure how to tap this growth region. But give them time…