Self-managed super funds (SMSFs) aren’t having a good year. According to new research by Credit Suisse, SMSFs are on track for their worst annual performance since 2011.
How bad is it?
SMSFs lost a whopping $19 billion in the June quarter. But it’s going to get much worse. By September, Credit Suisse predicts further losses of up to $21 billion.
These losses largely reflect an overexposure to Aussie stocks.
Volatility on the ASX has hurt all superannuation funds, not just ‘selfies’. But SMSFs’ share of investments in stocks was larger than your typical retail fund. The difference is stark.
SMSF’s held 40% of their assets in Aussie stocks in June 2014. There were relatively few investment forays into foreign stock markets.
This compares with a more even split seen across other funds. Industry funds had 24% of assets invested in Aussie stocks. Yet unlike SMSFs, they also had 26% of assets tied up in global stocks.
And this is where SMSFs lost out.
The Australian stock market has provided returns of just 6% in the past year. That compares poorly to global stocks, which saw returns of 23%. Credit Suisse explains:
‘The main reason why selfies have gone backwards over the last quarter is because of their investment losses in Australian equities. We calculate [SMSFs] suffered $19 billion of Australian equity capital losses in the June quarter which is equivalent to around 3% of assets.
‘The average [SMSF] member would have endured a draw-down of about $18,000 in the June quarter and a further $20,000 in the current quarter.’
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Share of SMSFs down for the year
At the same time, the share of SMSFs across the industry is falling.
SMSF’s accounted for 30% of market share just 12 months ago. That’s now slipped marginally to 29% — or roughly $590 billion in assets. According to Credit Suisse, a lack of performance is behind this.
‘We believe much of the reason why selfies are losing market share is because of their relatively poor recent performance’.
Yet Credit Suisse thinks SMSFs will hold firm in the long run. It doesn’t expect investments in Aussie stocks to pare back. That seems strange, considering the losses over the past year. But it cites historical evidence to explain. In previous crises, like the GFC and the Euro crisis of 2011–12, demand for Aussie stocks remained robust across SMSFs.
Other than that, Australian stocks still offer good dividend yields. And that’s something all investors can get behind. Credit Suisse notes:
‘Selfies buy what they know and Australian Tax Office data suggests they have a cleat domestic bias. Perhaps this is appropriate given their liabilities are in Aussie dollars. Within Australia, there are not many assets that come close to providing the post-tax dividend yield on offer by the equity market.
‘Our findings suggest selfies will be buyers of Aussie equities in the year ahead.’
For these reasons, Credit Suisse expects SMSFs will stick with Aussie stocks.
As for the darling picks looking ahead? No surprise that the dividend progressives, likes the Big Four banks and Telstra [ASX:TLS], lead the way here.
Contributor, The Daily Reckoning
PS: The Aussie share market had its worst month since 2008 in August. The ASX lost 9% of its value, shedding more than $70 billion.
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He’s convinced the ASX will lose as much as 90% of its market cap in the coming months. As China’s economic slowdown picks up pace, volatility will follow.
Vern is the award-winning Founder of the Gowdie Family Wealth and The Gowdie Letter advisory services. He’s ranked as one of Australia’s Top 50 financial planners.
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