Fixed interest and property favoured over cash

In the wake of falling interest rates, cash holdings fell 1.9 per cent to 24.5 per cent in the December quarter, compared with the previous quarter, according to the survey.

Instead, SMSF trustees favoured a move towards fixed interest assets, increasing their exposure to longer term deposits, aiming to lock in higher interest rates, the survey stated.

AMP SMSF administration head of technical services Philip LaGreca said that SMSF trustees were looking for a new “safe’ home for their investments following cash losing its appeal in the wake of interest rate cuts.

“About one-third of cash outflows moved into fixed interest holdings – up 0.6 per cent for the quarter to 11.2 per cent of total SMSF investments – with trustees locking in higher interest rates through longer term deposits,” Mr LaGreca said.

The survey revealed that the remaining cash outflows were used to pay deposits on direct property holdings.

There was a 1.1 per cent surge in property investment for the quarter.

“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,” the survey stated. 

In addition, there was a 5 per cent increase in the use of limited recourse borrowing arrangements, with 29 per cent of all direct property holders having a gearing arrangement in place at the end of the December quarter, compared with 24 per cent in the previous quarter.

Meanwhile, asset allocation in Australian equities remained steady, with a 1 per cent increase for the quarter, on par with the increase in the All Ordinaries.

However, Australian equity allocation was higher than expected for SMSF trustees, largely driven by the weight that Direct Australian Equity holdings have in the top 20 stocks.

Average SMSF contributions in the quarter dropped to $6,585 compared to $8,731 for the previous quarter.

The average contribution for the December 2012 quarter however, is on par with the average contribution for December 2011 and 2010 quarters.

The quarterly survey covered around 1900 funds, a sample of the SMSFs Multiport administers and the investments held at the end of December 2012.