SMSF Investment StrategiesSharing Simple Strategies for Self Managed Super Funds
-->
Performance review for FY2010 Part 1 – Overview
I started pulling together the information for our annual review of our investment performance last week. As we have been pretty defensive in our investment strategy last financial year, I was only expecting a small positive single digit return for the year.
Despite having positive earnings, I was slightly disappointed that in terms of net asset value, our returns were pretty flat due to the strong Australian dollar. The US to AUD exchange rate set by the ATO for FY2010 is about 18% higher than FY2009 and that meant that our entire USD denominated assets would be worth 18% less this year compared to last year. If they were valued at the same exchange rate as last year, then we should have achieved a 5.5% annual return, according to my simple calculations. Accounting for currency gains/loss is a bit beyond my abilities so I will leave it to our capable accountants to do the correct valuations (update on Nov 2: based on audited accounts, our SMSF returns for FY2010 is -1.58%). We are not too worried if our performance this year is lower due to currency fluctuations, as we are comfortable with holding a large part of SMSF assets in US dollars. We actually increased our US dollar holding last year because we expected the US dollar to go up, which it did against the Euro but unfortunately not against the Aussie dollar.
What is more important in our review is how well each of our investment strategies worked out and what lessons we have learned, and that is what we will focus on in our review. The following is a summary of investments and strategies we used last year:
| Type of investment | Strategies | |
| 1 | Stocks and equity ETFs | protective puts, covered calls and cash secured puts |
| 2 | Precious metals | buy and hold |
| 3 | Term Deposits | buy and hold |
| 4 | Treasury Bonds | buy and hold, protective puts |
| 5 | Inverse ETFs | buy and hold, protective puts |
| 6 | Exchange traded options | speculative long puts, put revolvers |
The first three types of investments were familiar ones which we had used before in previous years. The next three were new to our SMSF. As we are among those who believed that the 2009 stock market rally is simply a counter trend rally, we expect the major downtrend which started in October 2007 to resume after this rally ends. In the first leg down from October 2007 to March 2009, we were not prepared for a bear market and all we did was move out of stocks into the safety of cash. For the next leg down, we would like our SMSF to be able to profit from a falling market so I started to look for strategies that would enable us to do that. Due to the unlimited risk in shorting stocks, SMSFs are not allowed to short stocks. I identified two potential strategies that we could use which would comply with the restrictions for SMSFs. The first strategy is to buy put options and the second strategy is to buy inverse ETFs. In April 2010, I added a third strategy which is proprietary options strategy I learned from San Jose Options called put revolvers, which are a type of complex option spread. I will be sharing how each of our investments worked out in a series of blog posts over the next couple of weeks.
Stay tuned…
Print This Post
