It sounds crazy, but Australian self-managed super funds (SMSFs) are already investing in the “exotic” asset, according to new research from SuperConcepts.
“Frozen semen is more tradable than bullion because you can sell it units,” said Phil LaGreca, SuperConcepts analyst.
He explained that the product is often bought in “straws” which require Nitrogen storage, with the value of the straws aligned with the stallion’s heritage and the market scarcity of the semen’s lineage.
And if the stallion is a multiple title winner, its semen also increases in value and can enjoy capital gains.
“If a horse comes from a winning line of showjumping or dressage it can command enormous fees for a date night – technically known as ‘Stallion Standing Fees’,” LaGreca said.
“[But] like any SMSF asset, it needs to be professionally stored and insured, so these costs need to be factored against any capital growth forecasts.”
Frozen stallion was just one of 10 “exotic” SMSF investments identified in the SuperConcepts research.
“The value is derived from the fact that a limited number of licenses are made available to provides the right to operate a taxi,” LaGreca noted.
“The value in this asset is changing because the limited right to operate is being disrupted by ride sharing services that allow anyone to become a fare-charging driver.”
The man who shorted the US sub-prime mortgage market in the 2008 Global Financial Crisis, Michael Burry has long invested in water. He believes water and farmland will be worth a lot in the future.
LaGreca noted that rural properties generally have their water rights split out from the deed so they trade with other parties.
One SMSF held 260 units of rights valued at $563,200, making an income of $15,649.50 from the investment.
“Just say you’ve got a river running through your property, you could sell over 100 megalitres to neighbours up or downstream,” LaGreca said.
“Or sell the water rights back to the original seller and rent the water you use. Or sublease the rights to one party who might retail it to others. You just hope there’s always water when you need it.”
The Brother 32G automatic tacker sewing machine is used in leather working and fabric design. One SMSF bought the machine for a small business, but the investment has not performed well, making just $11,288.55 between 2011 and 2017.
The Water Kiosk Vending machines produce still or sparkling water and have stainless steel bottles available for purchase.
“While it’s providing a good return on its own, this is a pretty good example of the flexibility and freedom that an SMSF gives you for ethical investment vehicles, which we’re seeing more of,” he continued.
Investments in these will see declining returns as maintenance costs eventually render the machines worthless.
But one SMSF has $134,000 invested in the technology, which returned $55,000 in the 2018 financial year.
“These particular machines were leased to holiday parks, aged care facilities and motor inns, so they had a very steady income.”
“We’ve seen more than one SMSF fund with a classic car, but you can’t buy it and drive it or rent it to a related party.
However, some people do rent them out for income, as wedding vehicles for example, and they hope it’ll appreciate over time if they hang onto it.
The return on investment is calculated with offspring recorded as distributions, with the mother considered the initial asset.
LaGreca said livestock are regularly bought by farmers as an asset which is leased back to the business.
“Super funds can buy equipment as a business asset and we often see this with small business owners,” LaGreca said.
“The super fund leases the equipment to a business, which is typically owned by the members. There are rules around this including a 5 per cent cap on the value of fund investments that are leased to your business.”
One SMSF invested in a $15,000 industrial grade laser, with the Diode 808 laser used by a Tasmanian beauty salon for hair removal.
“Equipment comes with risk and this particular machine broke at some point in the year, which is something that needs to be considered when buying machinery with super funds.”
ATMs offer regular income via flat monthly fees and a fractional transaction fee, but this investment will likely become more rare as Aussies turn to digital payments.
“Quite often ATM investors sign a 10 year lease, which makes them pretty obsolete and impossible to sell at that point,” warned LaGreca.
“Capital depreciation is inherent in buying machinery or equipment, which means it’s done for the income but an SMSF needs to know if the loss of capital for an upfront investment is offset by the expected returns.”
Investors may also fall afoul of schemes in which they’re paid with fees taken from new ATM investors. When the scheme falls apart, so too does their returns.
ATM distribution companies can also lose contracts or go out of business. And they’re also subject to physical damage.
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“Physical assets come with different risks to financial assets because they are subject to damage, wear or theft.
“Many times people buy these things with their super funds to help their own business due to cash flow restrictions,” the SMSF expert said.
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