Wider horizon for DIY funds: true story of SMSF diversification
Andrew Main, Senior Business Reporter, Sydney
A common belief in the self-managed super fund world is that investors don’t have anything like enough overseas exposure, but recovering banker Graham Hand has investigated the issue and found that the supposed 0.5 per cent offshore weighting of Australian SMSFs is a dramatic understatement.
Hand, who works with funds management legend Chris Cuffe as editor of the free-subscription Cuffelinks newsletter (cuffelinks.com.au) says that the real offshore exposure in DIY funds is closer to 15 per cent, or 30 times as big as conventional wisdom believes.
So, how on earth did that massive discrepancy occur? Hand is a mild-mannered sort of character but he jokingly blames the ATO.
He says that when the ATO publishes its Superannuation Bulletin figures covering the asset allocation statistics for SMSFs (for which it is the regulator), it has a specific category of “overseas shares’’, which is where the 0.5 per cent number comes from.
In the latest SMSF numbers from the ATO, there is only $2.7 billion in that category, for instance, and yet we know there is almost $600bn socked away in SMSFs.
There are a raft of other overseas exposures not counted in the overseas shares numbers, Hand says, such as managed investments, listed investment companies and exchange-traded funds.
Just on the first category, he notes that just two global equity managers Platinum and Magellan have $29bn and $37bn under management respectively, although much of this is on behalf of large institutions. Nonetheless, Hand says: “Both these fund managers attract significant support from SMSF trustees’’.
“The global funds of Schroders, Lazard, Fidelity, Vanguard, BT, Colonial First State, and dozens of other popular managers have large SMSF support, not only in broad markets but also in sectors like infrastructure and resources,’’ he suggests.
He notes a similar situation in LICs, many of which have an increasingly global focus such as Hunter Hall, Perpetual, Templeton, Platinum, AMP Capital China, Global Masters and Magellan.
What’s more as Hand points out: “The new global fund from Wilson, Future Generation Global Company, is targeting $550 million and Geoff Wilson says 65 per cent of his clients are SMSFs.’’
In supporting Hand’s contention perhaps the clearest numbers emerge from exchange-traded funds, ETFs, where managers keep good records of how much money is going where.
“In May 2015 there were 129 ETFs trading on the ASX with a market capitalisation of $18.6bn. Flows into global equities are among the top few categories and in 2014, net inflows into developed market global equities ranked first at $1.4bn,’’ he says.
And before you worry that those numbers are a bit out of date, he notes that the ATO numbers for March 2015 are in fact estimates, because they are extrapolated from data collected from 2012-3 returns. As SMSF trustees know, SMSFs are allowed to lodge their returns up to a year, or even longer, after the end of the financial year. So there is every chance those inflows to global funds have accelerated.
Hand has taken the trouble to quiz SMSF administrators for their view on how much of SMSFs should actually be categorised as overseas holdings, and again, their numbers are infinitely higher than the ATO’s 0.52 per cent. He says online SMSF services group Multiport calculated that about 14.4 per cent of SMSF assets it handles are effectively offshore holdings, based on the 2500 funds it administers.
Of those the majority at 9.9 per cent is held via managed funds, with 2.8 per cent held in offshore ETFs and a skinny 1.7 per cent held in direct overseas shares.
Hand notes that aside from actual totals, the trend is very much on the rise. As he says: “Given the importance of SMSFs in holding one third of all superannuation and the retirement savings of more than one million Australians, and the design of superannuation policy, the knowledge about what they invest in needs significant improvement. This applies to much of the official data produced on SMSFs.
“The ATO needs to run up a few red flags about using the data. SMSFs are not as badly diversified as most claim.’’