SMSFs ignoring overseas diversification

Self- managed superannuation funds (SMSFs) have ignored falling interest rates and overseas assets, with cash investments now representing 27 per cent of SMSF investments, according to Invast Australia.

The global brokerage firm said SMSFs' holding of cash and term deposits jumped to $157.7 billion in June, up from $155.7 billion in the March quarter.

During the June quarter, SMSF assets dipped to $589.9 billion from $600.3 billion in the March quarter, with Australian share holdings dropping $12.2 billion during the same quarter.

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Less than one per cent ($1.8 billion) of SMSF portfolios is invested in international shares, while $533 million was invested in offshore managed investments, and $329 million in offshore property, the firm said.

Invast Australia's investment committee chairman, Gavin White, said the numbers highlight a huge home investment bias and could expose them to huge risks if the local share market corrects more than those offshore.

"The problems with this are twofold. First, investors are missing out on often superior returns offered by offshore financial markets, with the S&P/ASX200 well underperforming the US stock market, and underperforming most European markets over the past year," White said.

"SMSFs are missing out on booming sectors, such as the all-important healthcare and technology industries… while they have overdosed on bank and resources shares."

White said the second problem with not diversifying offshore is that SMSF investors are missing out on currency depreciation benefits.

"If SMSFs have offshore investments denominated in offshore currencies such as the US dollar, to the extent that the Australian dollar falls, investors will gain some returns back on their unhedged international investments, which works to offset losses on their Australian investments if the local share market falls," he said.

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