There are unusual investors and then there are unusual investors. Armand Aguillon, 41, is one of them. Aguillon and his wife Michelle run their own self-managed super fund to invest in US property and shares – but not just any property. He buys small, vacant blocks of land on the US, sometimes for next to nothing, using the research and services of sites such as auction.com, Trulia and Zillow. Then he puts them in his super fund, with the aim of building his and his family's wealth over time. "It costs more to transfer the title deed into our name than it does to buy the land," says Aquillon.
At the moment, he is not expecting his US property investments to turn a profit. But he anticipates their value will appreciate with time and is targeting an 8 per cent return over the long-term. The fund was opened in 2015 and it has less than $50,000 in investments in it. Half is in cash, 30 per cent is in US shares and 20 per cent is held in US properties. Aquillon's experience is far from unique. Many people use their fund for non-traditional investment purposes.
Philip Ryan, managing director of Trilogy Funds, once worked with a couple who invested their entire retirement fund in an ostrich farm. "Creative for sure, but not a great investment strategy. I was working as a lawyer at the time and fortunately I was able to negotiate to get them out of it," says Ryan, who notes it is more common than people might think for SMSF investors to take an interest in assets others might avoid.
"I often see people who put their superannuation in highly technical investments like foreign currencies after taking a short course in currency trading. Another common trend is people who try to use their super fund to create a micro property development company, despite having no experience whatsoever in the property sector," he says.
Ryan says people in this situation are often looking for significantly above-average returns. "The downside of that strategy is the substantial risks that come with it. Cognitive bias is what really brings people undone; the tendency to focus on the potential upside of an investment and ignore the risks.
"He says it is the same reason people buy lotto tickets and fantasise about how they will spend their newfound millions, despite the odds of them winning being remote.As a result, Ryan says unusual assets and investment choices should be approached with extreme caution by anyone operating a self-managed super fund."Diversification is the main benefit of using more traditional investments like a mortgage trust or a managed fund. A mortgage trust spreads risk over a large number of mortgages secured over real estate in many different areas.
"So if one – or even several – of those mortgages were to fail, the impact may be minimal because they comprise a relatively small percentage of the overall fund. "There are lots of more unusual investment options for SMSF investors – vintage cars, art and wine are the usual suspects on this list. But it is also possible to invest in structures that are investment grade, but also more uncommon. The Prime Value Cash Plus Fund is one option for SMSFs looking for a more unusual exposure to cash, a bugbear for many trustees in a low interest rate world.
Billed as a cash alternative for investors, the fund invests in a diversified portfolio of income-producing assets. Its aim is to outperform the RBA cash rate with minimal risk of capital loss.
It produced a 6.5 per cent net return for investors for the year to January 31 , including franking credits. It has delivered an annual 4.1 per cent net return including franking credits since the fund started in 2014 The Prime Value Cash Plus Fund does not fit neatly within any traditional investment category, says its head of retail distribution, David Glascott. "The fund is attracting interest from investors who are disappointed in the returns they are receiving from their cash investments and want a low-risk, liquid alternative," he says.
Its franked distribution differentiates the structure from other cash-enhanced products and Glascott says the fund avoids high-risk investments because principal protection is its main aim.
"Much of the portfolio is invested in securities issued by major banks and financial institutions," he says. Investors looking for more unusual options outside Australia might consider the India Avenue Equity Fund, an open-ended managed fund launched last September.
It is benchmarked against the MSCI India Index in Australian dollars. It is a way for SMSF investors to access India's high-growth economy, which grew 7.9 per cent last year.
The fund is run by a specialist Indian investment house, India Avenue Investment Management, led by managing director Mugunthan Siva. The India Avenue Equity Fund is actively managed, which Siva says is important when investing in the sub-continent.
"India is a highly inefficient market, which means managers are in a unique position to add value through in-depth research," he says.
Nevertheless, SMSF investors should exercise caution when taking positions in non-traditional investments.As Ryan says, "the main benefit of using more traditional investment choices is the access it gives to the expertise and experience of professional fund managers".
It's important for SMSF investors to arm themselves with as much information as possible. But few retail investors have the depth of knowledge of a professional investment manager. So think carefully before committing funds to any asset not considered investment grade.