Despite their preference for investing in resource company shares, such as BHP Billiton and Rio Tinto, self-managed superannuation fund (SMSF) trustees must treat these stocks like any others when looking to rebalance their portfolios, according to a funds management director operating in the resource sector.
“If SMSF investors have reason to question the long-term worth of an industrial stock, it is usually dumped. EIM often finds, when talking to advisers, that their clients are often wedded to their mining stocks without applying the same logic,” EIM Capital Managers director John Robertson said.
To reinforce his point, Robertson highlighted the fact mining companies were affected by a well-defined cycle that rotated through exploration success, the development of new projects and then a loss of growth momentum.
“SMSF investors need to come to grips with this reality. They should not be afraid to quit a large resource stock if the fundamentals do not stack up. All resource stocks are risky and it is a mistake to conclude that the bigger companies are less risky. They simply bring a different set of risks,” he said.
“An SMSF resources portfolio should be diversified enough to include companies in their strong growth phases as well as those that are relying on commodity prices for the bulk of any earnings uplift.”
He warned that with the resources sector, just like any other sector, historical growth was not a guide to the strength of future earnings.
