The self-managed super fund industry presents a wealth of opportunity for those willing to dip into this lucrative investor pool, says James Dunn from Listed@ASX.
THE SELF-MANAGED SUPER FUND (SMSF) REVOLUTION is the great, unintended consequence of the evolution of the Australian superannuation industry. No-one predicted that more than one million Australians would choose to run their own super, but there is now almost $560 billion in SMSFs, which has grown to the point where they collectively hold the single largest portion of the total super pie.
Broking firm Credit Suisse estimates that since June 2005, the “selfies” have ploughed $121 billion into shares – equivalent to one-third of net new equity issuance over the period. With about 32 per cent of their assets held in Australian shares, Credit Suisse says SMSFs now own more than 16 per cent of the Australian share market, or about $229 billion worth of shares. Financial industry research firm Investment Trends says 95 per cent of SMSFs hold direct shares.
“SMSFs won the future in 2007, when super became effectively tax-free, suiting high-income earners down to the ground,” says Alex Dunnin, executive director of research and compliance at research house Rainmaker. “The SMSF has become the preferred wealth holding structure of the high-net-worth investor.”
At the top end of the SMSF scale are some extremely sophisticated investors: in fact, some of the larger SMSFs are virtual family offices. “At the top end of the SMSF scale, there are some funds that are over $100 million in assets,” says Graeme Colley, director of technical and professional standards at the SMSF Association, the industry peak body for specialist advisers to SMSFs.
“They’re certainly the exceptions, but there is a handful of those. A rung down from that, we estimate that there are about 19,000 SMSFs with $10 million-plus in assets,” says Colley.
In no uncertain terms, that is a massive pool of capital sitting there. And for Australia’s small-cap stocks, the SMSF stash could finally provide the solution to the perennial problem: how do you get noticed?
With Australia one of the most concentrated stock markets in the world – Telstra, Commonwealth Bank, Westpac, National Australia Bank, ANZ Bank, Wesfarmers, Woolworths, BHP and Rio Tinto account for about 60 per cent of the benchmark index’s value – many small-cap companies are stuck in the bind of not getting any investor attention because they’re too small, but not being able to grow because they can’t make themselves known to investors.
The good news is that it is a pool of capital increasingly willing to support smaller companies. According to a 2014 survey from research house Investment Trends, about 21 per cent of SMSF trustees plan to invest in small-cap or speculative shares in the next 12 months. Andrew Keys, principal at investor relations consultancy Keys Thomas Associates and former head of investor relations at Telstra, says SMSFs have “legitimised” the pursuit of retail investors by smaller companies.
“The retail sector is often dismissed as ‘mums and dads’, but we know now that so many of them are actually private professional investors. SMSF trustees are just what companies are looking for – they are sticky shareholders. It’s true patient capital,” says Keys.
But, he adds, the paradox is that companies “have to find them” – there is no guaranteed conduit into the SMSF world. “It’s a very fragmented eco-system of touch points,” says Keys. “Strategically, an IR person should be looking at the advisers and institutions that have a connection with these types of investors.”
Keys says IR departments need to be talking to the heads of distribution, the research analysts, the wealth advisers and the managed discretionary account/separately managed account (MDA/SMA) providers. “You can’t rely on one point of entry.” Also, says Keys, IR people have to reach out to “all the other advisory and professional bodies” – the accountants, the administrators.
Ronn Bechler, managing director of investor relations advisory firm Market Eye, says the simple answer to getting a hearing in the SMSF world is to tap into the private-client advice networks: the Bell Potters, Morgans, Ord Minnetts, Shaw Stockbrokings of the world, that have large retail franchises. “Self-managed is a bit of a misnomer – a large number of SMSFs are getting advice through their brokers. In many cases, the SMSF is just the structure for holding the stock. A large number of private-client advisers have clients who hold their shares in SMSFs, just like they hold other investments. It’s hard to be sure of who actually is a SMSF client, but often through a private-client network you can meet ten advisers, who will actually account for 500-plus clients – of which a majority could be SMSFs.”
Five tips to reach SMSFs
- Find the intermediaries and educate those intermediaries. Whether they are private-client advisers or aggregator groups like Wholesale Investor, it’s worth talking to them. And watch for the emergence of new platforms or portals that could talk to SMSFs.
- Don’t “dumb down” announcements and other content on the basis that it is only for “mum and dad” investors. As well as the fact you are still communicating with the sophisticated financial market, there are a number of mining or oil and gas company CEOs, CFOs, geologists and engineers who run SMSFs and who want to make their own assessment of your technical data.
- If you are not using social media, start. Don’t think using social media is just putting content out into the ether. Effective use of Twitter can widen the reach of your content dramatically. Many retail investors use LinkedIn for its headline-like alert system, as a free alternative to paid professional news-feeds like Bloomberg. And many people who are from a professional background – who are most likely to be investors – have LinkedIn profiles.
- Try every channel you can: be prepared for trial and error. There is no channel that is the solution in its own right, you’ve got to do a bit of everything.
- Get news and interesting content about your company out as soon as you can: don’t let shareholders read about you in tomorrow’s newspapers without hearing from you first. This helps to get your key messages across and builds loyalty in your retail shareholder base.
If a small-cap CEO can be talking to those ten advisers, says Bechler, that’s the way they have to see it: that they are telling their company’s story to 500-plus large investors. “It’s not like institutional marketing – you don’t need a research report to back it up – because those advisers will simply write a note to their clients if they like the story and grasp the upside you’re trying to show them. And you find that other brokers’ clients hear about the stock, and the advisers at those firms take calls on the stock, and quickly track down that note – or research if there is any – to educate themselves about it,” says Bechler.
“People assume that SMSFs are only interested in yield – and they are, at the top end of the ASX – but they’re also well aware of the need to diversify, and also to look for some good, long-term capital growth opportunities,” Bechler adds.
“Most small-cap companies are not yield stocks, so they have to tell the growth story. If you’re a CEO of a small-cap company that has growth aspirations, and you want a supportive register to help that process, you need to be targeting the SMSF intermediaries, and telling your story.”
The ability to magnify your message is even more pronounced in the social media space, says David Coe, managing editor of social media-based investor relations firm Social Investors. “If you can actually reach high-value followers – people who will value your content and share it via their own networks – you can leverage the message exponentially.
The beauty of “investor social media” is that while there is a belief that SMSF trustees are older people – who do not use social media – that is misconception,” says Coe. ASIC says 66 per cent of all SMSF trustees are aged over 50. But according to Pew Research, more than half of that age group use social media, and that group is the fastest-growing users of social media.
“That’s the people over 50. If you look at the people under 50, the numbers are even better: 66 per cent of new trustees are under 50, and 72 per cent of people aged 30 to 49 use social media. That’s where newer trustees are coming from. So the pendulum is heavily swinging towards an even greater use of social media by SMSF trustees,” he says.
The reward for reaching SMSFs is that they are “good advocates,” says Bechler. “If you’ve got hundreds of these retired, professional investors, they tend to advocate what’s in their portfolios. They become a great channel themselves,” he says.
Greg Galton, director of independent investment content website The Sophisticate Investor, says the catchcry of SMSFs has become ‘DYOR’ or Do Your Own Research. No matter how small they are, listed companies must communicate “efficiently and effectively” with this investor base, says Galton.
“There is no substitute for providing well written, strategic and regular information as part of your disclosures through the ASX announcements platform. This builds momentum and ensures the company remains visible and relevant to potential investors,” he says.