Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 128

ATO confirms SMSF global allocation “strongly understated”

Here we go again. Let’s breathlessly ignore the blindingly obvious for the sake of a good headline.

Each quarter, the Australian Taxation Office (ATO) releases the asset allocation figures for SMSFs, and like moths to a flame, journalists, PR firms and analysts are drawn to incorrect interpretations. The stories ignore the logic, as shown in Let’s debunk this myth about SMSFs and global shares.

After the recently released June 2015 data, the analysis again went like this:

"With less than 1 per cent of assets invested in overseas equities, criticism has arisen that SMSFs are ‘underdone’ internationally and not taking advantage of an important foreign exchange risk buffer." - Major national newspaper repeating article in leading investment newsletter.

“SMSFs are on the verge of a diversification disaster, as trustees pump record amounts into Australian cash investments while ignoring good value overseas assets, it has been claimed ... SMSFs have just $1.8 billion invested in overseas shares (less than one per cent of their total portfolios), and even less in offshore managed investments and offshore property ($533 million and $329 million respectively).” - PR release also picked up by leading industry newsletter.

(I have deliberately not identified the sources because Cuffelinks is a friendly publication not eager to make enemies, but I am not inventing this material. It happens every quarter).

Dozens of global investment managers operate in Australia, including the most popular in Magellan and Platinum, plus global Exchange Traded Funds (ETFs) and Listed Investment Companies (LICs), managing billions of dollars in global equities, and despite $590 billion in total SMSF assets, only $1.8 billion is in global equities. It’s clearly impossible.

The only way to settle this was to interview the ATO.

What does the ATO say?

The person responsible for collecting statistics at the ATO is Nathan Burgess, Director of Income Tax and Regulatory Risk. He confirmed that the $1.8 billion listed under ‘Overseas shares’ in the ATO Report is only the direct share investments held by SMSFs on overseas exchanges. Nathan said, “When we have spoken to many SMSF trustees, they say they would rather invest through domestic investment vehicles than directly on overseas exchanges.”

The ATO only looks at the first point of domicile of the investment vehicle, and the vast majority of global shares are held in domestic vehicles.

He identified three other categories in the ATO Report where other global equities might be held:

  • Listed trusts, total value $23.3 billion, listed on the ASX and including LICs and ETFs that hold global equities
  • Unlisted trusts, total value $52.5 billion, including managed funds on platforms
  • Other managed investments, value $29.4 billion.

The total of these three categories is $105.2 billion or 17.8% of SMSF assets.

Mr Burgess told me: “It’s fair to say a substantial amount is in international equities, much larger than the number quoted under the ‘Overseas shares’ category.”

The global allocation by SMSFs is “STRONGLY UNDERSTATED”

The ATO Director said it is not possible to put an exact number on the global allocation, because, “We don’t do a look-through to the final assets.”

In fact, he went further and said that the ATO prefers SMSFs to invest in domestic vehicles, because the ATO would rather monitor vehicles “located within our jurisdiction.”

“It gives the ATO the chance to interrogate and deal with local investment people. We like to know where the original money is controlled. We are interested in people located within our jurisdiction, under our overview and rules.”

He also said most of the global real estate investment is done through local investment trusts, and again, this is welcome because there are risks in individual trustees buying property overseas.

When I showed him some of the articles making claims about SMSFs investing in global equities, he repeated that the ATO only looks at the first point of domicile of the vehicles, and that the assumptions in my previous article are correct.

So what is the correct number?

Nobody knows the correct number, not even the person in the ATO in charge of collecting the statistics. But he has talked to many SMSF trustees in the supervisory and risk role, and confirmed substantial allocations to global equities.

My best guess is about 10% (which is still underweight compared with institutional balanced funds). When I spoke to three SMSF administrators, they reported numbers of 5%, 14% and 20%. It probably depends on the type of customers serviced. An administrator who targets financial advisers will see a larger allocation to the managed funds recommended by advisers.

A broker wrote to me after the last article, stating: “Of the total share portfolio data we have for 15,000 SMSFs, global exposure is less than 1% (via ETFs and LICs). If you talk to an administrator dealing with primarily self-directed funds (50-80% of the market), their allocation to managed funds is negligible and their portfolios look a lot like ours (ie massive skew to top 20 stocks, almost exclusive AUD bias).”

Despite the focus on ETFs, their total size in Australia is only $17 billion, according to BetaShares. Retail managed funds hold $730 billion and wholesale managed funds $820 billion, according to Plan for Life, so that’s where most of the global equities are. It is unlikely to be correct that up to 80% of SMSFs have ‘negligible’ exposure to managed funds.

Mr Burgess was unwilling to guess the correct allocation beyond saying that only looking at the “Overseas shares” category is “strongly understated”. We welcome any other SMSF service provider giving more insights.

Of course, many SMSFs do have low allocations to global equities, but there are 556,998 SMSFs with 1,049,840 trustees. The ‘less than 1%’ articles are way off the mark for the SMSF market as a whole. Often, the authors are either talking their book to make a case for global investing, or jumping to the wrong conclusions.


Graham Hand is Editor of Cuffelinks.

Graham Hand
October 05, 2015

Hi Derick

I think your accountant is listing the entry correctly according to ATO instructions - the problem is the resulting number does not tell us anything about the domestic/global split. My frustration is in the media jumping to the wrong conclusions and misleading people.


Derick Seaborn
October 05, 2015

I wonder if there is a misconception on my part or the part of my accountants regarding overseas investments. They insist in listing all my Platinum overseas funds as "Managed Investments (Australian)". They are in fact all overseas funds and make up 44% of the value of my super. If other accountants do this because Platinum is an Australian company it must surely give a false impression of our overall overseas investments. Regards, Derick. PS I love the newsletter and look forward to its arrival in my Thursday mail!

Cameron Howlett
October 03, 2015

Well done graham! Finally some confirmation from the "horses mouth".

SMSF Trustee
October 02, 2015

John K, just because the data don't serve the purposes of people wanting to talk about investment asset allocation doesn't mean that they are useless, misleading or a waste of money. They are collected as part of the ATO's own processes of checking income so that they can make sure everyone pays the appropriate amount of tax. From that point of view it doesn't really matter if a trust invests in domestic or global shares - it matters that the accountants for the fund are located in Australia so the ATO can chase them up if needs be.

Give the ATO a break, people. The fact that investment industry people have used their data for a purpose that was not intended reflects poorly on the users who didn't check the information more carefully before drawing incorrect conclusions. It's not the ATO that has gone on a rant about how SMSF trustees are idiots for having a home bias, it's the investment industry. The shame is on them for misreading all of us who have SMSF's that are reasonably invested overseas, not the providers of the data that's been misused.

John K
October 02, 2015

I wonder why the ATO bothers collecting totally useless and misleading statistics. What a huge waste of time and public money. From the above article it doesn't even seem like they are even interested in "fixing" the problem.
Like the previous comments, I have well over 30% of my SMSF in global equities which show up as zero percent in the stats.

Vicki C
October 13, 2017

Agree with John K - why bother asking the questions in the Annual Return?
It is confusing to work out even where 'local' managed fund and ETF investments should go, the ATO need to update their terminology.

October 02, 2015

Of course it must be difficult for the ATO to determine which funds are being invested Overseas, but a starting point would be to look at Funds like the Platinum International Funds or Magellan and others and classify them all as "Overseas Investments". The same would apply to a lot of ETF's. This should not be too difficult as the name of the ETF will tell them where they are invested. I am sure that most SMSF's in the above Funds would be exposed to Overseas shares by at least 30 - 40%

Peter G
October 02, 2015

I have a smsf. Apart from etfs and managed funds with an overseas focus, there is another avenue for gaining overseas share market exposure by way of local entities, ie, investment in locallly listed companies a considerable share of the sales revenue of which is derived from overseas or which pivot on overseas share market performances . Prominent exemplars are Magellan Financial Group, Platinum Asset Management, Sirtex, CSL, Macquarie Group, Resmed, Cochlear and Ramsay Healthcare. There are many others In aggregate, weighted for funds invested, my local stocks are 40% exposed. My fund would not be unusual in this regard.

Gary M
October 02, 2015

I wonder if the ATO classifies all ETFs listed on the ASX as “the first point of domicile” being Australian? Eg the biggest ASX-listed ETFs for global shares are listed here but are merely CDIs of US-listed ETFs. – eg IVV, IOO, etc. Since these and other iShares and several others are listed on ASX but actually primary listed in US, they should count them as “foreign” securities, not Australian just because they are listed here too.

October 02, 2015

Likewise my SMSF has 22% in global equities ( and moving to 25%) ,all via Australian listed LIC's, so zero allocation by the ATO classification.

October 02, 2015

I have 32% of my SMSF in global equities and 7% in US dollars (cash), but this would be represented as 0% according to the ATO classification rules.


Leave a Comment:



Let’s debunk this myth about SMSFs and global shares

Three areas SMSFs should consider outsourcing

Worried about low rates, SMSFs drop banks and diversify


Most viewed in recent weeks

Unexpected results in our retirement income survey

Who knew? With some surprise results, the Government is on unexpected firm ground in asking people to draw on all their assets in retirement, although the comments show what feisty and informed readers we have.

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Six COVID opportunist stocks prospering in adversity

Some high-quality companies have emerged even stronger since the onset of COVID and are well placed for outperformance. We call these the ‘COVID Opportunists’ as they are now dominating their specific sectors.

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Latest Updates


10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?


Sean Fenton on marching to your own investment tune

Is it more difficult to find stocks to short in a rising market? What impact has central bank dominance had over stock selection? How do you combine income and growth in a portfolio? Where are the opportunities?


D’oh! DDO rules turn some funds into a punching bag

The Design and Distribution Obligations (DDO) come into effect in two weeks. They will change the way banks promote products, force some small funds to close to new members and push issues into the listed space.


Dividends, disruption and star performers in FY21 wrap

Company results in FY21 were generally good with some standout results from those thriving in tough conditions. We highlight the companies that delivered some of the best results and our future  expectations.

Fixed interest

Coles no longer happy with the status quo

It used to be Down, Down for prices but the new status quo is Down Down for emissions. Until now, the realm of ESG has been mainly fund managers as 'responsible investors', but companies are now pushing credentials.

Investment strategies

Seven factors driving growth in Managed Accounts

As Managed Accounts surge through $100 billion for the first time, the line between retail, wholesale and institutional capabilities and portfolios continues to blur. Lower costs help with best interest duties.


Reader Survey: home values in age pension asset test

Read our article on the family home in the age pension test, with the RBA Governor putting the onus on social security to address house prices and the OECD calling out wealthy pensioners. What is your view?



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.