Covid-19 fears tore through global markets early in the year with no reliable indication at this stage as to when it will be behind us. From late February, sharemarkets begun to nosedive and within a matter of weeks bottomed out by up to 40% lower. Additionally, company dividends have been reduced or suspended, returns from interest-bearing securities such as term deposits are at record lows and landlords are dealing with tenants in hardship. It would be understandable if SMSF trustees felt overcome by fear and emotion, urging them to rush for the exits at precisely the wrong time. Pleasingly, this dramatic reaction did not eventuate and only a minority of SMSF trustees sold into cash following the downturn – none of which were Hewison clients of course.  

For the last 14 years, Vanguard & Investment Trends have been surveying close to 5,000 SMSF Trustee’s and close to 300 financial planners who advise SMSFs, providing a reliable snapshot of the priorities and issues facing SMSF trustees at that time. Here are some of the biggest trends from the 2020 ‘pandemic’ report: 

Growth in the sector slowed.  

The annual establishment rate of new SMSF’s has declined to a decade low. Maybe the franking credit debate in 2018, perceived complexity or expense of running an SMSF made some would-be trustees think twice. This could be a good outcome in my view, assuming those with second thoughts were the cohort for whom SMSF’s are not appropriate to begin with. For example, this might include those with lower balances, no interest in self-management or working with an Adviser, or those with poorly diversified investment strategies in mind.  

‘Control’ remains a leading desire for the establishment of an SMSF. 

It is good to see SMSF’s are being established for the right reasons. More ‘control’ over your investments can certainly be achieved through the establishment of an SMSF. Control ensures Trustees can choose who they invest with when to buy or sell and provides for a superior alignment between the member’s objectives compared to other superannuation options.  

SMSF panicked in March during the peak of market uncertainty but did not fully sell to cash.  

It is certainly understandable to read this considering that the ASX plunged 37% in a matter of weeks from late February until March 23rd. Although almost half of the survey participants (44%) said they made a substantial change to their portfolio in the prior 12 months, this was not that much higher than the long-run average of 36%. Concern levels began to subside from April onwards as the market recovery gained traction and pleasingly, 29% of trustees surveyed saw the downturn as a buying opportunity.   

Fixed Income is generally under-represented in SMSF portfolios.  

This does not come as a surprise to me. Without professional guidance, fixed income can be perceived as a low returning asset class or difficult to directly access without using a managed fund.  In turn, some SMSF investors are likely substituting fixed interest with dividends from equities – a decision that surely would have contributed to Trustees being nervous in March and likely now scratching their heads as to where their income will be sourced from in a lower dividend environment!  

Outcomes from the 2020 survey align with some of the discussions we have when meeting with prospective clients who already operate SMSF’s. Crises periods in investment markets should not be a time for making wholesale asset allocation changes and an appropriate strategy should be implemented to take advantage of opportunities when they present. As SMSF experts, we continue to see these superannuation structures as being excellent solutions for many who want more control over their investments while partnering with an Adviser for the day to day management of their affairs.