‘Selfies’ might find joy in international shares
IT is official. The army of selfmanaged super funds makes up one of the biggest likeminded group of investors on the Australian sharemarket.
Collectively, SMSFs own about 20 per cent of the local sharemarket. As a combined group, that makes them very powerful, indeed.
But mum and dad funds are not in shares for the power.
It is no secret Aussie shares offer two key benefits that make them well-suited to super funds — regular dividend income, and the potential for long-term capital growth, both of which can be lightly taxed.
Oddly, many “selfies” are cooling on direct shares.
A recent report by Investment Trends found SMSFs have about 35 per cent of their portfolio in direct shares, down from almost 50 per cent five years ago.
It is not a sign selfies are bailing out of shares altogether. Many are moving their money out of directly held shares, and into exchange traded funds and other diversified products.
That is not always a bad thing.
I have come across research showing do-it-yourself funds often concentrate their sharemarket investments in two main sectors — finance and resource stocks. This can leave retirement savings highly exposed to possible shifts in these industries.
The achilles heel of SMSFs is that many focus their investments on Australia.
A third of SMSFs do not have any overseas investments. The big hurdle is lack of understanding about what to invest in, or how to invest, overseas.
There are a variety of ways to invest globally. This can include ETFs, ASX listed shares with overseas revenue and actively managed funds.
So, how do the returns compare? Well, bearing in mind overseas shares do not have tax-friendly benefits such as franking credits that apply to homegrown shares, the returns on international shares stack up well.
Over the past three years overseas shares have dished up returns of 15.71 per cent compared with total returns (including dividends) of
12.57 per cent for Aussie shares. If we stretch that to five and 10-year periods, global shares have notched gains of 13.09 per cent and 12.63 per cent a year, compared with 8.47 per cent and 8.34 per cent for Australian shares.
It makes offshore investing worth a look for your selfie.
By keeping a close eye on fees, it can help you tick all the boxes for healthy returns plus diversification — and that is always a plus for SMSFs.
Paul Clitheroe is chairman of InvestSMART, chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.