Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 348

Worried about low rates, SMSFs drop banks and diversify

SMSFs are well-known for holding substantially greater allocations to cash and Australian shares than professional investors, while being underweight fixed income and international shares. They're also known for heavy allocations to high-yielding Australian shares, particularly financials.

But new nabtrade analysis suggests some of these allocations may be changing as ultra-low interest rates start to bite, and global and domestic markets reward risk-taking behaviour.

How allocations are changing

nabtrade SMSF trustees have reduced their allocation to banks by nearly 25% over the last four years, while increasing their allocations to diversified instruments such as ETFs and international share funds.

In 2019, SMSFs were net sellers of Australian equities in the first six months, taking profits as the S&P/ASX200 rallied, then they resumed buying as prices fell in July and August. Selling into rallies and buying on price weakness reflects the contrarian behaviour we typically see from our SMSF investors.

In addition to diversifying their portfolios to reduce exposure to banks and other overweight sectors, it's likely some investors were seeking to prevent a fall in their income should a future government ban the rebate of franking credits in a no or low tax environment.

Despite the reduction in financials, which fell 5% in 2019 alone, bank shares remain the most-held stocks by SMSFs, taking the four top holdings.

SMSFs also hold larger amounts of Woodside Petroleum, Transurban and Macquarie than non-SMSF investors.

Given the preference for high-yielding bank shares, many SMSFs have missed out on one of the biggest success stories on the ASX, with only 11% of nabtrade SMSFs holding global biotechnology company CSL. CSL is now the second largest stock on the ASX (and has been the first, dependng on when the market cap is measured), up over 50% in 2019 and 250% over five years.

Those SMSFs who do hold CSL are high conviction, with an average holding of over $150,000 versus $40,000 for Telstra. SMSF holdings of healthcare stocks has increased from 6% to 9% over four years.

Telstra was sold down throughout 2019 as its price strengthened, with 38% of SMSFs holding it at the beginning of the year, and only 34% holding it in December.

SMSFs also loosened their grip on BHP, ending the year with holdings down from 5% to 4.3% despite an increase of 18% in the price.

SMSF adoption of ETFs

SMSF trustees were early adopters of Exchange-Traded Funds (ETFs) with growth continuing in 2019. At the beginning of 2020, SMSFs held $20,000 more in diversified products (including ETFs, listed investment trusts and companies and mFunds) than at the beginning of 2019, of which 58% came from net buying (42% from market growth).

SMSFs took up increasing parcels of the large fixed interest Listed Investment Trusts (LITs) brought to market in 2019. Popular ETFs and mFunds also included those with exposure to international shares and fixed income. ETFs accounted for 8% of net buys in 2019.

The start of 2020 has been marked by a return to volatility, with coronavirus fears hanging over a market that had only recently reached record highs. nabtrade SMSF investors tend to respond less to volatility than other investors, and may see price falls as an opportunity to top up on favoured stocks. Interestingly, the cash position of nabtrade’s SMSFs was largely unchanged throughout 2019, leaving plenty of trustees with dry powder should further declines in domestic and international shares present good value.

 

Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade, a sponsor of Firstlinks. This material has been prepared as general information only, without reference to your objectives, financial situation or needs.

For more articles and papers from nabtrade, please click here.

 


 

Leave a Comment:

RELATED ARTICLES

Changing times as share investors settle in for the long haul

Headwinds and tailwinds, a decade in review

It’s the large stocks driving fund misery

banner

Most viewed in recent weeks

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 606 with weekend update

The boss of Australia’s fourth largest super fund by assets, UniSuper’s John Pearce, says Trump has declared an economic war and he’ll be reducing his US stock exposure over time. Should you follow suit?

  • 10 April 2025

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Latest Updates

Investment strategies

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Investment strategies

Does dividend investing make sense?

Dividend investing offers steady income and behavioral benefits, but its effectiveness depends on goals, market conditions, and fundamentals - especially in retirement, where it may limit full use of savings.

Economics

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Strategy

Ageing in spurts

Fascinating initial studies suggest that while we age continuously in years, our bodies age, not at a uniform rate, but in spurts at around ages 44 and 60.

Interviews

Platinum's new international funds boss shifts gears

Portfolio Manager Ted Alexander outlines the changes that he's made to Platinum's International Fund portfolio since taking charge in March, while staying true to its contrarian, value-focused roots.

Investment strategies

Four ways to capitalise on a forgotten investing megatrend

The Trump administration has not killed the multi-decade investment opportunity in decarbonisation. These four industries in particular face a step-change in demand and could reward long-term investors.

Strategy

How the election polls got it so wrong

The recent federal election outcome has puzzled many, with Labor's significant win despite a modest primary vote share. Preference flows played a crucial role, highlighting the complexity of forecasting electoral results.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.