SMSFs prosper on cash and agility

Self-Managed Superannuation Funds (SMSFs) emerged better from the global financial crisis than most, and are likely to emerge in similar shape from the latest market upheavals.

That is the analysis of SMSF Academy managing director, Aaron Dunn, who said the relative resilience of the SMSF sector was owed to two factors: 

"The first is that if you look statistically at SMSFs - they seem to have this larger exposure to cash at around 20 to 25 per cent," he said. "Now whether that's a true reflection or not is difficult to know, because we only get those statistics at 30 June each year - but to some extent, their haemorrhaging during the GFC wasn't as bad for that reason."

According to Dunn, the second scenario was the SMSF trustee receiving constant advice.

"So whether through a broker or a planner, the astute ones are probably getting back into the market at the right time and being quite active. 

"So I think you've got combinations of both," he said. "There will be some who will take a very conservative, 'set and forget' line and have their allocations of cash and fixed interest, and they'll sit quite comfortably with that.

 "But you also have those who will have their broker, and they'll be on the phone and saying that it's now down to 4,000 points - surely there's got to be some opportunities that fit in there," Dunn continued. "And they also look at the income side of things, particularly in pension phase.

"You talk to advisors and clients now and they're getting massive refunds because of their participation in both the BHP share buyback and the Woolies buyback, and that can make a 1, 1.5, 2 per cent difference to the fund's annual rate of return," Dunn said.

Yet while Dunn's two SMSF trustee examples may be at opposite ends of the spectrum - with one group succeeding almost by default and the other by utilising the flexibility available within SMSFs - he said that the rationale for such decisions lay in the position that a number of SMSF trustees found themselves in.

"I think you'll find there are a lot of nervous people out of the older group who are no longer getting regular pay checks going into their fund, and are therefore worried about the longevity of their retirement base," he said. "And that's opposed to someone who's still in that accumulation mode, knowing that they can't touch it and knowing that the long term horizons associated with it mean there are peaks and troughs, and that they're going to have to ride it out.

"They understand that this one might be longer or it might not be, but they look at the opportunities out there, they look at ANZ at $20 or whatever it is, or at the BHPs and CBAs of this world where you can get 10 per cent fully franked and the look to take advantage," Dunn said.

Yet if current global uncertainty continues, the key question is whether SMSF trustees will again be so fortunate. And the answer, according to Dunn, is that only time will tell.

"I know of a lot of people who have taken a very conservative line, and held that line since the GFC," he said. "They've just stuck to a fairly high percentage of cash or fixed interest and they've got to a point where they want to retain the capital.

"For them, that capital retention is king, and if it means that while they may miss out on some upside, at least they've got some comfort that they're not going to lose out on the downside.

"But I think that most SMSF trustees will follow the same strategies they followed during the GFC," Dunn continued. "They'll keep going back to quality stocks, so your top 50, top 100 type stuff.

"They'll really look at things like CBA with yield at 10 per cent fully franked; they'll look at that and say that if they can get 10 per cent fully franked, then that - in conjunction with some cash and fixed interest - has got to be worthwhile," he said.