China volatility increases risks for SMSFs

It has been a shaky start to 2016 for share markets around the world. Market activity so far in the year dubbed ‘sweet sixteen’ has left a taste in the mouth of SMSF investors that is anything but sweet and has brought home the risks associated with concentrated investments. Weak trade figures coming out of China in February have reignited concerns. Exports tumbled to their weakest level in over six years, and were down more than 25%
compared to February 2015[1].

Market activity so far in the year dubbed ‘sweet sixteen’ has left a taste in the mouth of SMSF investors that is anything but sweet and has brought home the risks associated with concentrated investments.

Australia’s over half a million SMSFs have nearly 60% of their assets, at a value of $323.4 billion, allocated to listed shares and cash/term deposits[2]. This concentration indicates there is a need for many SMSFs to start investigating more diversified investments.

According to the Australasian Accounting Business and Finance Journal, the way that the equity component of a portfolio is constructed can potentially magnify losses experienced in a bear market or, conversely, insulate a portfolio, preventing it from mirroring the losses experienced by the broader market indices.[3]

For example, if 36 percent of a portfolio’s funds are allocated to just six or seven securities, the potential for significant losses is much higher than would be the case if a diversification strategy had been deployed—ideally spreading the portfolio’s funds among 15 to 30 securities.

One diversification strategy is to invest in a range of different asset classes that includes a mortgage trust.

A mortgage trust is a form of investment that pools money for lending to borrowers as mortgages over property. This may be development property that already exists, or money may be lent to a borrower undertaking property development.

In return for investing money, investors receive a regular income called a “distribution” from the interest paid by borrowers and cash held by the Trust. Distributions may be paid half yearly, quarterly or monthly depending on the trust.

The Trilogy Monthly Income Trust offers investors access to the attractive returns available from investments in loans secured against first mortgages through a pooled mortgage fund. Its aim is to provide investors with a monthly income and to offer capital stability.  In addition, as a pooled mortgage fund, it offers investment additional diversification as its investments are spread across a range of mortgages.

Click here to find out more about diversifying your portfolio by investing in the Trilogy Monthly Income Trust.

Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds does not warrant or represent that the information in this article is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated. This information is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. It does not provide financial product advice nor is it an offer of securities. Applications may only be accepted by completing the applicable application accompanying the relevant PDS. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser, who will conduct an analysis based on your circumstances. Past performance is not a reliable indicator of future performance. Mortgage trusts are not bank deposits and are not government guarantees.


[2]Australian Taxation Office, Self-managed super fund statistical report, September 2015

[3] Australian Accounting Business and Finance Journal, Self-managed superannuation funds and the bear market, 2009