Westpac’s annual SMSF research study indicates that billions of dollars in self managed super fund value is set to move in new directions over the next 12 months.

Some of the most fascinating aspects of turbulent economic times are the measurable, regularly changing patterns in investor sentiment. The Westpac Self Managed Superannuation Report has tracked such sentiment over the last couple of years and the most recent study indicates a strong shift away from the perceived safety of cash, towards Australian shares.

The vast majority of self managed super fund (SMSF) members hold cash in their funds and it’s not just a minimal value. The average asset allocation to cash over the last 12 months accounted for 27 per cent of the fund’s value.

But as the RBA cash rate has continued to decrease over the past 12 months, cash has become a less attractive investment option for some SMSF members, despite its safety. This could explain why we are seeing 14.5 per cent of respondents intending to move out of cash in the next 12 months.

Most importantly, this percentage represents an average shift of $12.7 billion in asset allocation. Last year just 30 per cent of those looking to reduce their cash exposure said they planned to instead invest in direct Australian shares or equities. This year that number has shot up to 70 per cent. That will represent quite a shot in the arm for the Australian share market.

Reading the Signs

As financial institutions do their own research to gain as much insight into the market as possible, investors are also constantly looking for signs that might help them choose the right time to move out of the cash environment and towards higher risk assets.

SMSF members tell us they’re still wary of the impact of the GFC, the European debt crisis, concerns over Chinese and Australian economic growth and other geopolitical events. These issues cannot be underestimated in their impact on sentiment - even one-off, completely unpredictable events such as the recent, tragic Boston bombing have a real effect on markets and a further effect on sentiment. As a result, 44 per cent of respondents report that they are waiting for a more stable market before reducing cash investments.

Further Insight

What else do the numbers tell us? More people than ever are considering SMSFs, with an 8 per cent improvement from 54 per cent last year to 62 per cent this year, amongst those that are not currently members of an SMSF. That’s six in ten people outside the SMSF environment currently considering taking more direct control of their retirement investments.

SMSF members are also growing in investment confidence. Last year only 23 per cent said they believed they could make a better investment decision than managers of APRA funds but this year the number stands at 62 per cent.

Despite this growth in investor confidence, it’s worth noting that an SMSF is not right for everyone.  Prospective SMSF trustees need to know exactly what it is they are taking on when they start an SMSF, or become a member of an existing SMSF. It’s not a set-and-forget investment environment. SMSFs require constant attention from their fund member/s, including a regular review of the fund’s written investment strategy.  

In order to help SMSF trustees manage their personal finances and super, Westpac is now offering SMSF customers who open a DIY Super Solution bank account the option of having their own Relationship Manager – who specialises in SMSF – to help take the hassle out of running their SMSF plus their everyday banking. This means members are not entirely alone in managing their investments and have easy access to expertise and advice around investment options and super laws.

Self-reported positive investment returns within SMSFs have risen in the last 12 months from 59 per cent of survey respondents in 2012 to 74 per cent this year. That’s a good indication of investment savvy and market health. The booming SMSF sector itself must now ensure newcomers have the very best chances of achieving the same levels of success.