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Cash loses appeal for SMSFs in favour of fixed interest and property

Trustees decrease their cash holdings in favour of fixed interest and direct property investments, according to the latest Multiport SMSF Investment Patterns Survey.

Falling interest rates in the December 2012 quarter saw self-managed super fund (SMSF) trustees decrease their cash holdings in favour of fixed interest and direct property investments, according to the latest Multiport SMSF Investment Patterns Survey.

The quarterly Multiport SMSF Investment Patterns Survey covers around 1,900 funds, a sample of the SMSFs Multiport administers, and the investments held at 31 December 2012. The assets of the funds surveyed represent approximately $1.7 billion.

AMP SMSF Administration Head of Technical Services Philip LaGreca said cash holdings fell 1.9 per cent to 24.5 per cent in the December quarter, compared to the previous September quarter.

“With cash losing its appeal in the wake of two interest rate cuts for the quarter, SMSF trustees are looking for a new ‘safe’ home for their investments.

“About one third of cash outflows moved into fixed interest holdings – up 0.6 per cent for the quarter to 11.2 per cent of total SMSF investments – with trustees locking in higher interest rates through longer term deposits,” Mr LaGreca said.

The survey shows the remaining cash outflows were used to pay deposits on direct property holdings.

“There’s been a surge in direct property investment, up 1.1 per cent for the quarter and even more significant is the increase in the use of limited recourse borrowing arrangements, up 5 per cent on last quarter to 29 per cent of SMSF direct properties,” Mr LaGreca added.

While overall asset allocation to Australian equities increased just one per cent for the quarter – on par with the increase in the All Ordinaries– growth was higher than expected for SMSF trustees during the calendar year, as their holdings tend to be concentrated on the ASX Top 20 companies.

Mr LaGreca said the top 20 Australian shares outperformed the All Ordinaries by 22 per cent this calendar year, resulting in increased allocation to Australian equities for SMSFs across the calendar year.

Average SMSF contributions for the September quarter decreased to $6,585 compared to $8,731 for the previous quarter. This is in line with the trend shown during previous years where the December and March quarters generally show the lowest inflow of new contributions for the year.

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