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SMSF Investors Plan To Direct Billions Of Dollars Into International Markets And Exchange Traded Funds: Survey

Photo: Paula Bronstein/Getty Images.

International markets are a key driver behind a sharp rise in the number of self-managed superannuation funds planning to invest in Exchange Traded Funds (ETF), according to a large survey of Australian investors and financial planners.

The joint Vanguard and Investment Trends research says self-managed funds are making substantial asset allocation changes to increase diversification. Part of this is renewed interest in international markets.

The intention to invest in international shares by SMSFs almost doubled over the past 12 months to 22% (up from 12% in April 2013).

And the number of funds holding Exchange Traded Funds (managed funds listed on exchanges) increased 41% to 53,500 in the 12 months to April 2014. The Australian ETF market recently passed $11.7 billion in assets.

The number planning to invest in ETFs for the first time in the coming year jumped by 76% cent to 58,000.

The 2014 Self Managed Super Fund Report is based on a survey of 2,163 SMSF investors about the changes to how portfolios are constructed, the increased appetite for international exposure and the growing proportion of investors willing to pay for advice.

The SMSF sector now represents more than 30% of the $1.8 trillion superannuation industry in Australia and continues to grow with assets increasing 13% to $559 billion in the year to March 2014.

The sector is blazing a trail in terms of managing retirement incomes. More than 49% of SMSFs are in pension or drawdown phase, compared with 17% for industry super funds.

Robin Bowerman, Vanguard’s head of market strategy and communications, says it’s clear SMSF investors are looking to increase their exposure to international markets.

“The increased focus on international investing is valuable in a diversification sense,” he says.

“However, we are cautious when key international markets like the US share market have had such strong performance in the past year and hope that advisers and investors are taking a long term view because too often we see investors disappointed when chasing future returns based on recent past performance.”

Over a quarter of SMSFs (27%, up from 14%) who made a substantial asset allocation change in the last 12 months did so to increase diversification.

Allocation to direct shares remained steady over the past 12 months (44% of total SMSF assets, edging down from 45%) while their allocation to cash declined to 23%, down from 26%.

There was also an increase in the use of managed funds and the average investment by SMSFs who hold managed funds is now $210,000 which is a 23% increase up from $170,000 in 2013.

The Investment Trends research shows that in 2014 about 150,000 self managed funds (a significant increase from 115,000 in 2013) are administered by specialist SMSF services. Annual tax reporting and audits (54%) and low fees (45%) were the most commonly cited drivers of selecting a specialist administration provider.

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