The Multiport SMSF Investment Patterns Survey December 2012

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1 The Multiport SMSF Investment Patterns Survey ember 20 To get a closer insight into where SMSF trustees invest, Multiport undertakes an analysis of our its SMSF client investments each quarter to look at the asset allocation for the quarter and emerging investment trends. The survey covers around 1,900 funds, a sample of the SMSFs Multiport administers and the investments they held at ember 20. Funds are administered on a daily basis which ensures data is based on actual investments and is completely up to date. The assets of the funds surveyed represent approximately $1.7 billion. Cash losing its appeal, so search is on for a new safe home Cash holdings decreased quite significantly with SMSF trustees moving cash into fixed interest assets to lock in higher interest rates prior to the two official interest rate cuts in the quarter. The rest of the cash outflow in the quarter was used to pay deposits on properties, particularly with gearing. The overall asset allocation break-up as at ember 20 was: Sector Cash and short term deposits Fixed Interest Australian Shares International Shares Property Other (Hedge funds, agricultural funds, private geared & ungeared trusts and collectables) Total

2 Calendar Year Analysis Multiport has prepared an analysis of the asset allocation of SMSF investments across the 20 calendar year, taking into consideration the change in annual performance of the market. The summary shows what the asset allocation at ember 20 should have been, if trustees had stayed in the market and left their initial asset allocation unchanged during the year this is termed theoretical allocation in the table below. To reflect the movements of each asset class, a range of indices were used to replicate the returns namely, UBS Australian Bank Bill Index for Cash, UBS Australian Composite Bond (All Series All Maturities) Index for Fixed Interest, S&P ASX All Ordinaries Accumulation Index for Australian Share, MSCI World ex-aust Accumulation Index (unhedged $AUD) for International Shares and the S& P ASX 200 A-REIT Accumulation Index for Property. The summary shows that the Australian Equities allocation is higher than expected from normal growth in the market. This was largely driven by the significant weight that Direct Australian Equity holdings have in the top 20 stocks. The ASX top 20 outperformed the All Ordinaries by over 22%. In relation to Property, the difference between the theoretical and actual allocation is most likely attributable to the difference in the types of underlying properties between Australian Real Estate Investment Trusts (A-REITs) and the SMSF client base. SMSFs have a heavier weighting in residential rather than commercial or industrial property, resulting in the lower actual allocation. Asset Category 1 January 20 Allocation % Annual Performance Movement Theoretical ember 20 Allocation Actual ember 20 Allocation Variance Cash and short term deposits Fixed Interest Australian Shares International Shares Property Other (Hedge funds, agricultural funds, and private geared and ungeared trusts) Total

3 Cash holdings decreasing The overall allocation to Cash decreased during the quarter by almost 2%. It appeared that shorter term deposits which reached maturity during the quarter were not reinvested and only a few new short-term term deposits were established during the quarter. Instead, approximately one third of cash outflows moved into the fixed interest category with trustees investing their money in longer term deposits. With two interest rate cuts occurring during the quarter, trustees increased their exposure to longer term deposits aiming to lock in higher rates. Cash Term Deposits < 1 year Total % Contributions, Benefit and Pension payments The average contribution inflow for the quarter decreased to $6,585 compared to $8,7 for the previous quarter. This is in line with the trend of previous years where the ember and quarters usually show the lowest inflow of new contributions during the year. The average contribution for the ember 20 quarter is on par with the average contribution amount for the ember 20 and ember 20 quarters Contribution Value per Fund ($) Financial Quarter

4 Benefit and pension payments made by SMSFs were again higher than the average inflow of contributions, at around $,007 per fund for the quarter, compared to $,460 for the ember quarter. During the ember quarter 83% of benefit payments were pension payments and 17% lump sum payments, a slight increase in the proportion of pension payments compared to the previous quarter. Fixed Interest investments on the increase The ember quarter shows an increase in fixed interest exposure, specifically via term deposits. The increase in longer term deposits funded from cash holdings shows trustees have tried to lock in interest rates in anticipation of further interest rate cuts. Hybrids & Other direct holdings Term Deposits > 1 year Managed Funds Total % Australian equities remain steady Overall asset allocation in Australian Equities increased by almost 1%, this was exactly on par with the increase in the All Ordinaries for the quarter. This suggests that effectively little new money went into the asset category and trustees stayed in the market and rode the up swing during the quarter. Direct Shares Managed Fund Total Australian Shares % Top Australian Shares The companies in the Top remain unchanged from the previous quarter. The Top shares make up 17.9% of total SMSF assets held, 55% of the Direct Australian Equities holdings and nearly 49% of all the Australian Equity allocation. The most commonly held ($ invested) shares at ember 20 were:

5 Ranking Company S & P Top Constituents by Market Cap 1 BHP Billiton Limited BHP Billiton Limited 2 Commonwealth Bank Ltd Commonwealth Bank Ltd 3 Westpac Banking Corporation Westpac Banking Corporation 4 Fortescue Metals Group LTD ANZ Limited 5 ANZ Limited National Australia Bank Ltd 6 Telstra Corporation Limited Telstra Corporation Limited 7 National Australia Bank Ltd Wesfarmers Limited 8 Woolworths Ltd Woolworths Ltd 9 Wesfarmers Limited Rio Tinto Ltd Woodside Petroleum Ltd CSL Ltd The Top by Market Cap in the index are four banks, two mining companies, two retailers, one healthcare business and a telco. International holdings remain steady Exposure to International Equities remained fairly stable for the quarter with only a 0.2% increase despite a small decrease in the MSCI World Index. Those surveyed are more heavily weighted towards Asia and other Emerging markets, compared to the MSCI World Index. Based on the performance of these areas it appeared trustees simply stayed in the market rather than made additional allocations to account for the increase. The split between managed funds and direct investment continues to show managed funds are the preferred method of investing in overseas markets due to the complications still present in investing overseas directly. There has been a further take up of ETFs, with just over 7% of the overall international holdings being done via ETFs, compared to 5% for the ember quarter. Direct Shares & ETFs Managed Funds Total % Exposure to Managed Funds continues to decrease The survey has again reflected a continued decline in the use of Managed Funds direct investment. This indicates that traditional fund managers do not seem to be designing investment products that appeal to SMSF investors. International Equities remain the exception where the majority of investments are done via managed funds. The use of ETFs while increasing is still not significant and represents less than 1% of total assets, with the

6 majority of ETFs being international equities and some growth in the Australian Equities sector as well (1% of the Australian Equities allocation). The table below summarises the Managed Funds exposure as a percentage of total investments amongst the different asset categories. Cash & Fixed Interest Australian Shares International Shares Property & Other Total Property allocation shows significant increase in direct property The asset allocation of Direct Property increased significantly by 1.1% for the quarter, while the allocation to indirect property has again decreased compared to the previous quarter. Direct property now represents 90% of all SMSF property holdings. The increase in Direct Property investment appeared to be mostly coming from an increase in the number of new commercial properties purchased during the quarter. Out of the total number of properties held by the funds in the survey, 76% are residential and 24% are commercial properties, compared to 80% versus 20% for the previous two quarters. Direct Property Listed Property, Managed Funds & Syndicates Total % Increase in limited recourse borrowing arrangements to purchase property Around 15.5% of the total number of funds in the survey are currently utilising a borrowing arrangement, this is unchanged since last quarter. The total number of loans is split equally between loans for financial assets and property, while the number of property loans represented only 43% of all loans during the previous quarter. With a small increase in the number of financial asset loans and a significant increase in the number of property loans, it appears the majority of new property purchased during the quarter utilised a Limited Recourse Borrowing arrangement.

7 At the end of the ember quarter, 29% of all direct property holders had a gearing arrangement in place, up significantly from 24% during the ember quarter. As for the loan values, the average property loan amount decreased to $268k compared to $274k for the previous quarter. The average loan amount for financial asset loans decreased significantly to $76k, compared to $83k for the ember quarter and $96k for the quarter. The graph below shows the split across direct property and financial assets of the value of total borrowings at ember 20. Financial Asset Loans 21.73% Borrowing across Assets % Split of Loans Property Loans 78.27% For any queries in relation to this Investment Pattern Survey please contact Philip La Greca on (02) or Philip@multiport.com.au. Philip La Greca is Head of Technical Services. Multiport is a leading specialist SMSF and Managed Account administration company. The vast majority of Multiport administered SMSFs have a wide range of financial advisers providing investment advice to the trustees and this may make the analysis results different to the wider SMSF community.