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SMSF trustees turn to hybrids as an alternative source of income

Nov 3, 2016, 12:37 PM
With interest rates at an all-time low, SMSF trustees looking for income returns have increased investment in hybrid securities, according to the latest SuperConcepts SMSF Investment Patterns Survey.

In the September 2016 quarter, the asset allocation to the fixed interest sector increased from 12.2 per cent to 12.8 per cent. The growth was mainly owing to the increased allocation to hybrid securities which rose from 6.5 per cent to 7 per cent.

SuperConcepts Executive Manager Technical & Strategic Solutions Phil La Greca said the continued low interest rate environment was driving trustees to search for new income investments that drive better returns.

“The continued drop in interest rates has given trustees no choice but to seek income elsewhere. The new hybrid capital offer from ANZ has led to increased interest in hybrids but investors are proceeding with caution as the security generally carries significant risk,” said Mr La Greca.

The trend to use a limited recourse borrowing arrangement has seen the overall allocation to property loans increase by 7.4% from 70.2 per cent to 75.3 per cent for the quarter. Meanwhile the number of financial asset loans decreased by 16.9 per cent for the quarter.

“The ATO’s safe harbour guidelines around limited recourse borrowing arrangements has led investors to wind up some of their related party loans in relation to financial assets and focus gearing on property.”

At the end of the end of the September quarter 38 per cent of all direct property holders had a gearing arrangement in place, up from 37.3 per cent the previous quarter.

Overall contribution levels to SMSFs in the September quarter continued to decline with the average contribution inflow per fund $3,040, down from $10,750 the previous quarter.

“The continued decline in SMSF contributions this quarter is likely to be due to speculation at the time on proposed superannuation changes,” Mr La Greca said. 

“However, following the government’s September announcement around significant adjustments to proposed superannuation changes, we expect this trend to be reversed and contribution levels to start rising again. 

“With the current $180,000 after-tax contribution cap, and the three year $540,000 bring-forward rule remaining until 30 June 2017, we’re likely to see a significant uplift in the level of after tax contributions before the end of the financial year.” 

The quarterly SuperConcepts SMSF Investment Patterns Survey covers approximately 2,900 funds, a sample of SMSFs administered by Multiport (part of the SuperConcepts group) and the investments they held at 30 September 2016.  The assets of the funds surveyed represent approximately $3.1 billion.

Media contact: 
Audrey Blackburn
02 9257 6844 / 0424 924 083