Asset allocation is a vital component of any investment portfolio. And the data shows that many SMSF investors, who are generally savvier than the typical retail investor, have made some changes to their asset allocation philosophies in the wake of the coronavirus.

8% of surveyed SMSFs made ‘drastic changes’ to their asset allocation, defined as changing more than 50% of their portfolio. This 8% figure is twice as high as 2019’s survey.

The 2020 SMSF Investor Report, published by firms Investment Trends and Vanguard, shows that SMSFs reduced their exposure to shares by 4%. The allocation of shares within SMSF portfolios is currently sitting at 31%, down from a peak of 45% in 2014, and the lowest level recorded since 2009.

Only 5% reported that they would increase their exposure to fixed-income investments, while 5% also reported that they would decrease their exposure to this asset class. Investors are surprisingly lukewarm towards fixed-income, prompting some analysts to claim that investors have correctly identified the problem, but are choosing the wrong solution.

In short, investors who want dividends and passive income should be increasing their exposure to fixed income investments, rather than chasing yield on riskier equities.

Michael Blomfield, chief executive of research house Investment Trends, says that this behaviour shows that investors don’t have a “deep understanding of the role of fixed income within a portfolio.”

By focusing on yield and not fixed-income, investors are turning their backs on a vital piece of their portfolio, one that is more important than ever in the current economic environment.