Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
SMSFs shake off home bias, shift to international equities
Australian investors’ love for domestic equities remains strong, but repeated exhortations from advisers to diversify seem to be finally taking root, with interest in international equities superseding that of domestic equities, according to recent data from VanEck.
Investors in Australia – especially retirement age investors who prioritise income yielding investments – have historically preferred domestic equities because of the imputation credits attached, effectively doubling the income paid.
For advisers and investors alike, the idiosyncratic nature of our franking credit system has always provided an investment conundrum: how heavily do you tilt to domestic equities to capture the extra income while also adhering to basic principles of asset allocation risk by spreading investments across classes?
That tension seems to be settling, with “more people than ever” looking to expand their overseas portfolio, according to VanEck. More than 75 per cent of Australian investors are planning to invest internationally next year, while about 70 per cent are considering domestic equities.
Part of the shift is being put down to the increasing popularity of ETFs which are cheap, readily available, enjoy almost absolute liquidity and have benefitted from more than a decade of tracking indices that have been on a record bull run. International equity ETFs have proliferated in this time, giving investors an easy access point they didn’t have before.
“The Australian investor profile is changing,” says Arian Neiron, VanEck Asia Pacific chief investment officer and managing director. “Australians have historically demonstrated a home bias in their portfolios, despite the domestic market representing only a small portion of the opportunities available in the global investment universe. The increasing desire to include offshore exposure aligns with the rapid growth of ETFs in the Australian market that offer access to nearly every asset class and market around the world.”
It comes as no surprise that ETFs are the most popular investment vehicle, with 60 per cent of surveyed respondents saying this option was their favourite investment product. For those under 40, that number increased to 80 per cent.
“Additionally, two-thirds of respondents plan to increase their ETF investments in the next 12 months, reflecting a rise from 59 per cent in the previous year,” VanEck adds. “Fifty-nine per cent of SMSF investors plan on increasing their allocation to ETFs. One in three investors now use ETFs for more than half their portfolio.”
According to Neiron, the growth of ETFs will continue, only adding to investors’ collective access to diversified investment products.
“The growth trajectory of the Australian ETF industry continues to accelerate with record-breaking flows to many of the leading funds,” he says. “By the end of 2024, we expect the ETF market in Australia to reach $220 billion in real passive ETF funds under management (i.e. not including flows into unlisted funds).”
