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What Self-Managed Super Funds bought in 2016
As the end of 2016 draws near, self-directed investors appear to be following clear trends as they look for growth outside the largest 100 stocks.
An analysis from the SelfWealth platform shows that the $621-billion self-managed superannuation fund (SMSF) sector is now showing an appetite for risk with a particular interest in small-caps.
The proportion of smaller stocks held by our members has doubled in just one year, from 9.7 per cent to 19.3 per cent by weighting.
SMSFs managed through the SelfWealth platform are likelier than average to hold small-caps. Because of the focus on equal weighting of all stocks within a portfolio on our platform, this strategy can give small-caps as much emphasis or importance as larger-cap stocks.
SMSFs are typically considered to be highly conservative, and the overall weighting heavily towards the top 20 ASX stocks as well as high-performing Exchange Traded Funds (ETFs) and Listed Investment Companies, shows this to be true.
However, the ongoing trend towards choosing traditionally riskier small-caps as part of a portfolio reveals a willingness among SMSF take risk that has previously not been asserted.
For users of SelfWealth, harnessing the power of the crowd to shape their investment strategy, success including small-cap stocks could spark a trend towards the sector, with smaller companies and indexed funds featuring in more SMSF portfolios.
Trend has strong momentum
We see this SMSF trend towards small-caps continuing into 2017 for a number of reasons.
From mid-2012 to early 2016 small-caps significantly underperformed the ASX top 100, which were boosted by the banks’ share-price surge over that period.
However, this year the S&P/ASX Small Ordinaries Index has rallied in the continued low-growth and low-interest rate environment. With a relatively stable sharemarket, and bearish expectations of continued growth in the top 100 companies, appetite for risk is growing. In the past year the Small Ords has returned 27 per cent, including dividends.
SelfWealth also notes a demographical trend here. More trustees in the under-54 bracket are entering the market and using the SelfWealth platform.
According to Vanguard, almost 44 per cent of people who established SMSFs in the March quarter of 2015 were under 45. These investors, which make up 37.4 per cent of overall SMSFs, are likely to have a higher-risk investment strategy.
SMSF stock allocations by sector
Across SelfWealth portfolios in 2016 there has been significant interest in the healthcare sector within SMSFs, with a 2.23 per cent increase in holdings in what are otherwise highly stable portfolios. This is in part due to strong investor sentiment with large-cap stocks, including Medibank Private and Sonic Healthcare, both of which are in the top 20 most popular stocks.
There has been a move away from mining and energy stocks, exchange-traded funds and real estate sectors. The latter is of particular interest given the low interest rates fuelling strong property growth in the past decade.
But there are signs that the property bubble could deflate, and while Australian Real Estate Investment Trusts, as well as infrastructure and government bonds, have been considered a safe haven, this may not be the case in perpetuity.
Table 1: How SMSF sector allocations are changing
Top 10 SMSF stocks
The top holdings of SMSFs has not significantly changed over the past year. They have tightly held their banking stocks, while CSL has climbed back into favour.
Despite changes in the lower end of the portfolio, SelfWealth reflects the broader sentiment that SMSFs are likely to remain conservative and invested in top local stocks.
One continued criticism of local SMSFs is that they can trend towards being heavily weighted in domestic stocks. Of the top 10 most popular listed ETFs, six are focused on international stocks.
Table 2: Top 10 stocks held by SMSFs in the SelfWealth community