Q. I have around $70K in super with Perpetual. It is 100% in Australian Industrial Shares. The return has been useless and the Management costs are almost 2%, I turn 60 next March but won’t need the money for 2 years. I intend retiring at 60. I have other income and investments. Due to the poor fund profile should I shift it to another fund or shift it within the Perpetual family.
I have not shifted it to date as I am suffering investor paralysis. I am just as likely to shift it and Perpetual will come good and the fund I’ve shifted to will drop. Any advice as to what I should do with it given a 2 year timeline?
A. The Perpetual Industrial Share Fund invests in Australian Industrial Companies with a focus on consistent income and the potential for long term growth. The fund specifically excludes Resources companies from the portfolio. The fund investment style is Value. As the fund is 100% exposed to Australian Shares, the absolute performance of the fund during the GFC has been poor. The returns to the fund over 5 years to June 2012 have been -2.3% p.a. However since the commencement of the fund in 1995, the fund has delivered a return of 9.7% p.a. The fees you mention indicate you are invested in a retail offering of the fund.
Deciding whether to sell or hold this investment should be based on your time frame for investment, your appetite for risk, whether there is a better investment manager available and the costs of changing. Overarching all of this is what is the most appropriate Financial Planning Strategy (as opposed to product) you should pursue given your age and overall circumstances.
What percentage of your overall portfolio this fund represents you don’t mention but diversifying by asset class and fund manager is vital to managing volatility and risk in your portfolio. Your appetite for risk will change over time and I infer that this is the case here. Make sure that you are prepared to accept the volatility that an investment into a 100% Australian Share fund will provide.
Australian Share funds should be held for the log term; 5+ years. Your investment time frame is only 2 years therefore you run the risk that your capital may not have recovered in time to your needs in times of short term volatility.
Punting on a recovery in a fund has led to your paralysis. Consideration should be given to blending different fund managers with different investment styles. Perpetual recommend that this fund be used in conjunction with Growth style Managers as part of an overall portfolio.
You also need to take into consideration the tax consequences of selling the investment as income and Capital Gains Tax may become payable.
Before making changes, seek advice in relation to your circumstances. Determine how best to utilize what you have in place as part of your overall strategy and portfolio construction.
This article was originally published in The Australian