A problem with a lot of SMSF investors is the lack of diversification in their investment portfolios.  This is probably because SMSF investors tend to own assets that can be traded via exchanges (eg the ASX).  For this reason they have large share holdings (mainly Australian shares) and cash but little else.

The lack of diversification is a potential problem.

On Thursday 1st May 2014, the Australian Securities Exchange launched mFunds.  mFunds is an excellent development that hasn’t grabbed a lot of headlines.

The mFunds system should provide an easier way to diversify investment portfolios yet still satisfy SMSF investor’s innate preference to own assets that can be transacted via an exchange.

mFunds will allow investors to use the ASX’s CHESS system to buy and sell units in unlisted managed funds. The managed funds on offer will cover every asset class like international shares, infrastructure, international fixed interest and so on.

At the moment there are about 45 fund managers and 12 brokers registered on the mFunds platform. With this level of take up from fund managers and brokers there is no excuse for an investor to lack diversification.

The ASX had to overcome several regulatory hurdles to get mFunds operating and so far they have only allowed less complex investments to be offered via the platform.  The CEO of the ASX is hoping that once the system proves successful, they’ll be allowed to add more complex investments.

As I said, this is an excellent development that should alleviate a potential problem.

Watch this space

Bye for now

Dan’s Corner

Source: The Australian Financial Review 8 May 2014 Shaun Drummond