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It seems SMSF investors are ahead of the curve as the coronavirus pandemic upends global economies and markets, not to mention our daily lives.
Despite being more concerned about the current state of the market than they were during the GFC, SMSFs are more likely than other investors to see this as a buying opportunity, says Recep Peker, Research Director at Investment Trends.
Market fears hit a new peak
According to the April 2020 Investment Trends Monthly Investor Intentions Index, SMSFs’ level of concern with financial markets hit a record high of 7.8 out of 10 in mid-March after a 30% drop in Australian shares. The previous high was 7.5 out of 10 in December 2011.
SMSFs concern level with the situation in the financial markets vs All Ordinaries Index
Source: Investment Trends Monthly Investment Intentions Index
Yet despite their immediate concerns, SMSFs expect the ASX All Ordinaries Index (excluding dividends) to be up 4% in 12 months.
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SMSFs stock market expectations for the next 12 months (excluding dividends) vs All Ordinaries
Source: Investment Trends Monthly Investor Intentions Index
By comparison, Australian investors on the whole are slightly less concerned about the current market situation – at 7.7 out of 10 – but more confused and pessimistic about the future. In mid-March, retail investors expected the market would recover by 5.2% in 12 months but by early April they had trimmed their expectations to a rise of 1.4%.
Recep Peker puts this down to age and experience: “SMSFs have a more long-term approach. They tend to be significantly older than the average retail investor and are probably more sophisticated. When markets fall, they are less likely to sell and more likely to buy,” he says.
What worries investors most
Another difference between SMSF investors and the rest is what they are most concerned about, with SMSFs already looking beyond the immediate impact of the coronavirus.
What are SMSFs most concerned about in relation to their investment?
Source: Investment Trends Monthly Investor Intentions Index)
In the first week of April over 70% of SMSFs cited the Australian economy as their major concern, ahead of the coronavirus. For retail investors, these major concerns were reversed.
A month earlier, the biggest worry for all investors was China’s economic slowdown. This just goes to show how quickly events, and markets, have moved.
Checking the nation’s pulse
CoreData Research has also been testing the financial pulse of the nation and discovered a gulf in investor sentiment between the cash haves and have nots.
The inaugural COVID-19 Impact Pulse Check 2020 Survey found 78% of investors expect a recession in the next 12 months.
This was reflected in a slump in overall investor sentiment for the next three months, which fell to minus 45 points in early April from minus 10 points in the first quarter of 2020. (The index swings from a maximum of +50 to a minimum of -50, with a reading of zero being neutral, that is, neither positive nor negative.)
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In other words, Australians are close to maximum pessimism, which could indicate we are close to the market bottom.
COVID-19 Investor Sentiment Tracker: Overall investor sentiment
Source: CoreData Research
Gold is all that glitters
This pessimism was reflected in asset class sentiment, with most investors anticipating the safe-haven asset of gold will perform best in the next three months.
How do you think the following asset classes will perform in the next quarter? (Percentage that think performance will be somewhat or much better)
|Asset class||As of 8 April||As of 1 April|
|Cash and cash equivalent||16.4%||10.1%|
As at 8 April, 42% of investors expect gold, a traditional safe-haven asset, will continue to outperform other investments. The price of the precious metal jumped almost 34% in the year to mid-April.
However, sentiment towards Australian shares improved markedly in the week to 8 April, perhaps signifying that investors believe the worst is behind us. That’s a brave call, but only time will tell. Australian shares fell more than 13% in the year to 14 April, while US shares fell a more modest 3.5%.
Sentiment is most negative towards direct property. After rebounding strongly late last year, the recovery in Australian residential property prices showed signs of faltering in March, as the social distancing rules began to impact auctions and open house inspections.
According to the CoreLogic Home Value Index, national home prices rose 0.7% in March and 7.5% over the year.
Cashed up and ‘buying the dip’
Even so, around a third of investors plan to buy the dip in shares at discount prices in the next quarter or have already done so.
Of those who don’t plan to buy, 60% say it’s because they don’t have the money to act. This lack of cash is reflected in the 26% of investors who report they will “maybe’’ utilise early access to their super under the government’s coronavirus support package.