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, these asset classes make up nearly half of all SMSF assets by value, according to the ATO, with listed shares at 31% and cash and term deposits at 16% as at March 2023.#
Given the familiarity and ease of access, it isn't particularly surprising, but the problem is this lack of diversification 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, with 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 SMSF can be significant if you have an overwhelming focus on Australian shares.
Lack of diversification can reduce returns over the long term, putting a noticeable dent in your retirement nest egg.
Looking for alternatives
Of course, no-one knows what the future holds. Which is why you 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 you’ll need help to build a truly diverse portfolio – help that allows you to retain your 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 Hostplus Self-Managed Invest (SMI). 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. In fact, there are three distinct ways Hostplus SMI can help you diversify your SMSF portfolio:
Access to unique assets
With Hostplus SMI, you’ll be able to access listed and unlisted investments previously only available to industry superannuation fund members.
For example, the Hostplus Infrastructure option suits patient SMSF investors seeking highly restricted, global, unlisted, institutional-grade infrastructure assets and investment managers. It also helps to meet the needs of investors looking for diversification and low volatility.
Another option is Hostplus International Shares – Emerging Markets. An investment portfolio consisting of attractive emerging market equities, it is actively managed by some of the world’s largest and most experienced emerging market fund managers. It’s important to note that this option is less diversified than the SMI Balanced option and has a higher risk and return profile.
Diversification through pre-mixed options
It may be that you’re 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.
You could also consider the Hostplus Balanced option which contains all our ‘best ideas’ and provides access to venture capital, private equity, infrastructure, property, equities, credit, alternatives, fixed interest and cash.
With SMSF trustees relying on listed shares to do the heavy lifting for investment performance, including assets to your portfolio that have little to no correlation to shares can help smooth out the daily stock market fluctuations.
Relying on the specialists
There’s no doubt going outside your 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 retirement goals.
Investing in Hostplus SMI will provide you with a number of benefits that can help simplify your investments, increase your diversification and make it easy to manage.
Hostplus SMI provides you 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. Whether you’re managing your super entirely on your own or working with an adviser, our insights and resources can assist you in making confident decisions about your fund, your future and your finances.
^Money Magazine’s Best Innovative Super Service Award 2020, Canstar’s Innovation Excellence Award 2020 and SuperRatings’ Best New Innovation Award 2020.
*The Indexed Balanced option has been designed for investors with a primary focus on minimising fees and has the lowest Total Investment Cost of the Hostplus pre-mixed options. This option aims to track established market indices. Compared to our Balanced option, Indexed Balanced does not invest in unlisted assets and instead has a higher allocation to listed equities, fixed interest, and cash.