Cash remains king in SMSFs
A recent Multiport survey found that self-managed super funds (SMSFs) have significantly increased their cash holdings and are continuing to reduce their exposure to Australian shares.
Cash holdings in 1600 funds administered by Multiport increased by nearly two percentage points in the December 2011 quarter from 24.7 per cent to 26.7 per cent, while Australian shares dropped for the fourth consecutive quarter.
ING Direct has seen a big spike in term deposit sales to SMSFs, with long-term products being a particular trend with this client segment.
Many are moving into cash to take advantage of its perceived safety and returns from term deposits, many of which come with interest rate premiums greater than 1.50 per cent over the RBA cash rate.
But head of Macquarie Specialist Investments, Peter van der Westhuyzen, said the end to the cash party might be near. The biggest contributor is the cash rate cut by the RBA.
“A leveraged solution may help SMSFs get the most out of Australian equities which right now are delivering attractive dividend returns and franking credits,” he said. “With such a large amount of cash sitting on the sidelines, it is worthwhile reconsidering Australian equities as an investment class.”
While things might be looking up as far as Australia is concerned, the move away from cash is not guaranteed.
Back in March 2010 – when investor sentiment was much more positive than it is in the first quarter of 2012 – a UBank survey found that SMSF investors had no plans to alter their cash allocation, despite improving economic conditions in Australia.
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