When it comes to investing within an SMSF, diversification is vital.
While Australians have historically had a well-documented love affair with direct property, the typical investments held within an SMSF couldn't be more different, with a clear preference for listed shares and cash. In fact, according to the ATO, these asset classes make up nearly half of all SMSF assets by value, with listed shares at 28% and cash and term deposits at 17% as at December 2021.#
Given the familiarity and ease of access, this isn't particularly surprising. This lack of diversification, though, leaves SMSFs highly vulnerable to market volatility and downturns.
Why? Because assets that are similar (or ‘correlated’) – either because of the country they hail from, or even the asset class – have a habit of moving in the same general direction, particularly when the economy takes an unexpected dive.
Take the current situation of rising inflation. This has an impact on cash rates which, in turn, increases the cost of debt. As debt becomes more expensive, Australian stocks are put under pressure, often impacting their profitability and share price. The impact on your clients’ SMSFs can be significant if they have an overwhelming focus on Australian shares.
Lack of diversification can reduce returns over the long term, putting a noticeable dent in your clients’ retirement nest eggs.
If a client had only invested in cash and term deposits over the past eight years, their savings may be looking lacklustre compared to a diversified portfolio that included long-term growth assets such as property. This is because interest rates didn't stir above three per cent in all that time – a far cry from the housing market, which went from strength to strength.
Looking for alternatives
Of course, no one knows what the future holds. Which is why SMSF trustees might consider moving beyond the Australian share market to alternative ways of investing. Not only could this provide a different investment return profile, but a corresponding reduction in the overall portfolio risk through the introduction of differing behaviours and influences.
The question is: How?
Non-traditional investments can be difficult to access. Plus, you’re often dealing with companies or sectors that are less well-known. It’s why your clients need help to build a truly diverse portfolio – help that allows them to retain their independence and flexibility while accessing some of the world’s most exclusive investments and top global asset managers.
The Hostplus SMI difference
That’s the logic behind the Hostplus Self-Managed Invest (SMI) offering. It gives SMSF trustees access to a wide range of investment strategies and a collection of non-traditional assets that are typically out of a small investor's reach. There are three distinct ways Hostplus SMI can help them diversify their SMSF portfolio:
Access to unique assets
With Hostplus SMI, your clients will be able to access listed and unlisted investments previously only available to industry superannuation fund members.
Another option is Hostplus’ International Shares – Emerging Markets. It’s an investment portfolio consisting of attractive emerging market equities that’s actively managed by some of the world’s largest and most experienced emerging market fund managers.
Diversification through pre-mixed options
It may be that your clients are looking for something that’s low-cost. Hostplus’ Indexed Balanced could be a good choice. It’s passively managed to target index-like returns and is globally diversified across international equities (partially hedged to reduce the amount of foreign currency exposure), Australian equities, global fixed interest, Australian fixed interest and cash.
SMSF trustees could also consider the Balanced option which contains Hostplus’ ‘best ideas’ and provides access to venture capital, private equity, infrastructure, property, equities, and more.
With trustees relying on listed shares to do the heavy lifting for investment performance, including assets to their portfolio that have little to no correlation, diversification can help smooth out the daily stock market fluctuations.
Relying on the specialists
There’s no doubt going outside an investor’s comfort zone can be daunting. However, Hostplus SMI relies on some of the largest and most experienced global asset managers – think BlackRock, Wellington and Bridgewater, among others – as well as its own in-house experts. Each option within these specialists is designed to pursue long-term investment strategies, from 10 up to 20 years, to better reflect your clients’ retirement goals.
Investing in Hostplus SMI will provide your clients with a number of benefits that can help simplify their investments, increase their diversification and make it easy to manage.
Hostplus SMI provides SMSF trustees with:
- a multi-award-winning investment innovation^
- access to otherwise unavailable investments
- greater diversification to protect your portfolio
- options built by investment specialists
- an online portal for visibility, reporting and transacting your investments.
To learn more about Hostplus Self-Managed Invest, please send our team an online enquiry or call us on 1300 350 819.
*You will need to be eligible for this option.
^Money Magazine’s Best Innovative Super Service Award 2020, Canstar’s Innovation Excellence Award 2020 and SuperRatings’ Best New Innovation Award 2020.