Alternatives to shares in SMSFs worth considering

It's taken decades, but "alternative" investments are becoming easier for investors to access at low cost.

Industry super funds' use of alternatives - mainly infrastructure investments - and more active asset allocation are two of the reasons they have generally outperformed their for-profit retail competitors.

There's no definition of alternatives - it is more about what they are not.

That is, they are not one of the traditional asset classes of shares, property, fixed interest and cash.

Alternative investments are much more accessible to small investors with the advent of exchange traded funds (ETFs).

These are listed on the Australian sharemarket and units in them are bought and sold just like shares in the listed companies.

The unit price of the ETF goes up and down with the value of the market being tracked, whether it is tracking the performance of a sharemarket index or the sharemarket sub-indices or the price of alternative investments like gold or commodities like oil.

It is off a low base but more DIY super fund trustees, who prefer investing directly rather than through a manager, are adding ETFs to their Telstra and big bank shares.

They have been mostly diversifying their Australian shares exposures with ETFs that track global sharemarkets.

These investors are likely to have their focus on the capital gains potential from global shares than on the diversification they offer, which may not be all that much.

When there is a major fall in share prices, they often fall together around the world, at least in the short term.

When it comes to lowering the volatility of the returns of portfolios dominated by shares, there are some alternative assets with prices that move at random against shares or in the opposite direction to act as a stabiliser for the portfolio.

Examples include alteratives such as infrastructure and gold.

Chris Brycki, the chief executive of Stockspot, an online investment adviser, says gold can be a good diversifier with respect to shares.

Gold ETFs listed on the Australian sharemarket track the gold price either in Australian or US dollars and most are backed by physical gold.

Gold and commodities like iron ore do have their drawbacks. For a start, they don't pay income. All of the return is through the price.

That's in contrast to the high and consistent level of dividends paid by Australian shares that act as a buffer for shareholders during sharemarket downturns.

Gold, for example, is really a store of value. There is little industrial use for it. The only real demand for it is from investors and for jewellery.

But when share prices are falling, often the price of gold will rise and when share prices are surging, gold prices will fall.

Infrastructure, which invests in everything from transport, energy and telecommunications to gas pipelines, can be another good diversifier.

You should always seek professional advice, but some exposure to alternative investments is worth considering.

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This story Alternatives to shares in SMSFs worth considering first appeared on The Sydney Morning Herald.