Self-managed superannuation fund members in the pension phase are demonstrating a stronger preference for domestic equities than their accumulation phase counterparts.
Recent analysis from Class shows SMSFs in pension phase are, on average, allocating 33% of their gross assets to domestic equities. In comparison, accumulation phase SMSFs are investing 23%.
However, investment in international equities is markedly more on par, accounting for just 1% of pension phase portfolios and 1.2% of accumulation phase.
"This preference for domestic shares is likely to be influenced by the fact that franking credits are heavily used by Australian companies and are not generally available for international shares," Class states.
The analysis demonstrated not only that pension phase SMSFs are more conservative investors, but also they are also more likely to invest in higher yield stocks. On average, pension SMSFs earn a 7% higher gross yield on ASX stocks when compared to accumulation phase SMSFs and the ASX200 index.
Pension phase SMSFs are also three times less likely to invest in direct property than those in the accumulation phase, and 12 times less likely to borrow money to invest in residential property.
"Where pension SMSFs do invest in property, they lean heavily towards commercial property. Perhaps this is another example of the pension fund's need for income as commercial properties deliver a more reliable and higher rental yield," the report reads.
"Pension SMSFs have always been cited as a conservative group who are heavily focused on yield. Our data analysis from the more than 150,000 SMSFs on Class validates this, but importantly delivers depth around the types of investments retirees are embracing," Class chief executive Kevin Bungard said.
"It will be interesting to track how investment preferences change over time, as a new set of SMSFs move into pension phase."
By Jamie Willliamson
2 February 2018