Self-managed super funds (SMSFs) are becoming increasingly popular, and according to APRA, SMSF assets grew by 10% to $595 billion in the year to March 2015, following growth of 13% in the year before.
Despite the volatility in the equity market over the past decade, the SMSF sector continues to go from strength to strength, with more than 1 million Australians now holding their superannuation savings in an SMSF.
The reasons an individual may establish an SMSF are wide and varied but for the majority of investors it is to gain greater control over their investments.
Although some individuals rely on professional advice to select their investment options, the majority of trustees still chose their own investment strategy and undertake their own research for new investment opportunities.
It is interesting to note that Australian equities remain by far the most popular investments for SMSF investors, with the average fund holding a 50% allocation to shares compared to just 20% in cash and term deposits. It is therefore vitally important that trustees construct their portfolios in a way that can withstand the volatility in the equity markets at the same time as delivering a reliable stream of growth and income over many years into retirement.
With that in mind, here are three stocks that some SMSF investors might find attractive in the current volatile market:
1. Virtus Health Ltd (ASX: VRT) – Virtus is a market leader and the largest provider of assisted reproductive services (ARS) in Australia and Ireland with a growing presence in Singapore. Since releasing a profit downgrade in June 2015, the share price has failed to recover and is now trading at $5.60 per share – well below its 52-week high of $8.39. Competition in this sector has been increasing over recent years and the level of cycle growth over the last 12 months has been below historical trends. Despite this, ARS are likely to grow at a moderate pace throughout the world as the maternal age continues to increase. Overall, Virtus appears reasonably priced as a long term investment and investors will be benefit from an attractive forecast dividend yield of 5.2%.
2. Sydney Airport Holdings Ltd (ASX:SYD) – Sydney Airport has been one of the best performing infrastructure stocks on the ASX over the past 10 years and more recently has benefited from the lower Australian dollar boosting inbound tourism. International passenger arrivals have been growing solidly over the past 12 months with a notable surge in tourists from Asia. The recent volatility in the market has seen many investors buying Sydney Airport for its defensive qualities and growing income stream. This has pushed the share price to nearly $6 per share and it is now offering an unfranked dividend yield of 4.3%. Although Sydney Airport is a high quality stock, it appears slightly over-valued at these prices and I would like to see the share price head back towards $5 per share before taking a stake in the airport operator.
3. Mineral Resources Limited (ASX: MIN) – Some investors may see the massive drop in Mineral Resources’ share price over the past 18 months as a buying opportunity but this is not a stock that SMSF investors should be considering. The iron ore sector faces a number of long term headwinds stemming directly from an over-supply and lack of demand. These fundamentals do not bode well for mining services companies like Mineral Resources who will remain under pressure from other miners looking to reduce production costs. These stocks are best left to traders and short-term investors, but if SMSF investors wish to get exposed to the resources sector, I would suggest considering the largest diversified miner in BHP Billiton Limited (ASX: BHP).
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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.