Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 272

SMSF investment trends show rising diversity

Frustrated by the underperformance of many Australian blue-chips, SMSF trustees have increasingly turned to a more diversified group of mid and small cap companies that have shown strong gains over the past 12 months. As shown below, in 2017/2018, small caps significantly outperformed stocks in the ASX50.

The trend away from the ASX20

ASX20 shares now account for just 33% of the total value of shares traded by SMSFs, down from 40% a year ago. However, SMSFs are still more likely than other investors to trade ASX20 shares. ASX20 stocks account for only 29% of trades by value undertaken by non-SMSF investors.

The top three most-traded stocks by value remain Commonwealth Bank (CBA), Telstra (TLS) and National Australia Bank (NAB), although they now account for a smaller proportion of trades overall. The key changes were CSL (CSL) into the top 10, while A2 Milk (A2M) moved up from eighth to fifth. On the flip side, Woodside (WPL) fell out of the top 10, and Fortescue Metals (FMG) fell from fourth to eighth.

 Top 15 shares traded by SMSFs (by value, as a proportion of total trades)

Some of the biggest increases in traded values included Mirvac (MGR), with trading by value up 937%, Wisetech Global (WTC), up 161%, AMP, up 154%, and Afterpay Touch (APT), up 126%.

There was a clear overlap with seven of the top 10 performing stocks in the ASX200 over the 12 months to 30 June 2018 appearing in the top 50 stocks traded by SMSFs, as the winners attracted the buyers. Many of these are in the ASX MidCap 50, comprising the companies in positions 51–100 of the ASX200, and the technology sector.

Traditional blue-chips continue to have a strong attraction and we have seen SMSFs taking advantage of share price weakness to buy into companies like AMP, Ramsay Health Care and Telstra, in a blue-chip bargain hunt that reflects an underlying belief in the long-term prospects for these ASX stalwarts.

Offshore diversification

SMSFs increasingly use ETFs to diversify offshore. Over the last six months, we’ve seen this trend intensify, with internationally-focused funds now comprising nearly 47% of all ETF trades, up from 44%. As a result, Australian share ETFs now account for only 42% of ETF trades, down from 43%.

ETF trades by value and category

While the top four ETFs have remained unchanged over the last six months, an analysis of the top 12 ETFs traded by value shows SMSFs increasing their exposure to currency and property, as well as international equities. The strength of this shift suggests it is being driven by a desire for greater diversification, rather than simply the relative performance of different markets.

The Top 10 ETFs by trade value 1 January to 30 June 2018

Like ETFs, SMSFs are increasingly using Listed Investment Companies (LICs) and Listed Investment Trusts (LITs) to gain exposure to new asset markets, particularly offshore. During the last six months, the value of international LIC and LIT trades by SMSFs has risen from 23% to 26% of total LIC and LIT trades.

The Top 10 LICs/LITs by trade value 1 January to 30 June 2018

While the top four most-traded funds by value have remained the same over the last six months, the MCP Master Income Trust has moved into fifth place, with trades increasing 60% by value. This trust is a fixed income LIC, and its newfound prominence is further evidence of a growing tendency by SMSFs to use listed investment vehicles for greater diversification.

Overall, recent trading data confirms that the new, internationally focused LICs and LITs have carved out a significant niche, despite the considerable head start enjoyed by long-established domestic LICs.

Direct investment into international shares

As international trading becomes easier, adding Apple or Facebook to an SMSF portfolio has become increasingly attractive.

Over the last six months, the value of direct international shares traded by SMSFs has grown by 30%, building on a 27% rise in the prior period, a growth rate significantly higher than that of non-SMSF investors. International share portfolios have become increasingly diversified, with the average number of international stocks held by SMSFs rising from 5.7 to 6.4, compared to just 3.4 among other investors.

Looking at the top 15 stocks held by SMSFs (refer Top 15 table above) reveals a list of well-known names and strong share price performers, especially the FAANG stocks – Facebook, Amazon, Apple, Netflix and Google (or Alphabet). They also include trusted names such as Berkshire Hathaway and Microsoft, with a strong overall US focus.

However, Chinese-based stocks, particularly technology stocks Ali Baba and JD.com are also represented, and over the last six months, some of the largest increases in trading value have been Chinese-based bank stocks, as shown in the trading values table. This interest in international diversification among SMSF investors extends beyond individual companies to ETFs available only on overseas exchanges. As a result, the value of offshore ETF holdings has increased 49% over the last six months, albeit from a low base.

Increasing SMSF diversity and sophistication

Looking back at the last six months, SMSF investors are increasingly diverse and sophisticated in their investment choices. While their portfolios are still heavily weighted towards larger domestic stocks, SMSFs are looking beyond the ASX20, as well as taking advantage of market dips to buy into blue-chip shares at a bargain price.

 

Marcus Evans is the Head of SMSF Customers for Commonwealth Bank. This article is based on a report, the CommSec SMSF Trading Trends Report, an exploration of the online trading behaviour of SMSF investors, released every six months, prepared by Commonwealth Securities Limited (CommSec). This article is general information and it is not intended to replace professional advice.

5 Comments
Keenan
September 23, 2018

Dear SMSF Trustee,

Thank you for the comprehensive answer.

Dane
September 20, 2018

Pleasing to see some assets being moved offshore. I was talking to a someone recently who made the point that given Australia is like a small cap sector given it only represents less than 3% of total global sharemarket. There is obviously currency risk with offshore equities and no franking credits on offer but the former can be hedged and the latter may disappear as of May next year.

- Looking at the composition of top 15 shares traded by SMSF's, it's interesting that investors have a propensity to buy more of things as they get more expensive (Afterpay, Wisetech A2M). This is the exact opposite of what we normally do as consumers when buying any other goods/services that are not called shares. Can't take credit for that as it was Howard Marks who made that observation.

- If Trustees are holding both ASX200 ETF's and individual bank and resource stocks on top, you should be mindful of the level of exposure to these two sectors, which will represent almost 50% of the ETF's exposure.

- LIC's seem to be all the rage and if you can buy one at a discount (i.e. for less than the assets are worth) then it can work out nicely if the gap closes over time. But there is no guarantee it will and you are also adding an additional element of uncertainty to an already difficult game as there is no knowing where the LIC will trade relative to its NTA. If you buy LIC's at a premium...I'll just leave it there. lol

Duncan
September 20, 2018

I'd love to know how they manage their taxes on international shares and on ETFs. The tax accounting for these is really hard!

Keenan
September 18, 2018

Thank you for an informative and interesting article.

It would be intersting to find out how SMSFs manage their FX risk when investing in international shares.

SMSF Trustee
September 20, 2018

OK Keenan, I'm not sure exactly what you have in mind in asking that question, but I'll tell you how I manage currency in my SMSF.

I make my allocation to international shares taking full account of how much FX risk I want to have. When I'm positioned at my 'neutral' allocation I'll be unhedged, fully accepting the contribution to volatility that the currency brings. When I want more global shares than this, I'll usually go into a hedged global share fund. I make sure to include in the portfolio a manager that offers an unhedged and a hedged version of their product (eg Realindex).

I have some allocations to global active macro managers that may include some short or medium term exchange rate position-taking based on a view about short to medium term movements, but other than that I don't really believe that exchange rates can or even need to be actively managed.

In my international fixed income allocations, I use hedged funds or funds that have a limited scope to do what the global macro managers mentioned above do.

I'm sure that lots of other SMSF folk do it differently than that, but I'm sure I'm not Robinson Crusoe either.

 

Leave a Comment:

     

RELATED ARTICLES

Headwinds and tailwinds, a decade in review

Why August company reporting season was poor

It’s the large stocks driving fund misery

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Welcome to Firstlinks Edition 455 with weekend update

The resolve of many investors to focus on the long term with their share portfolios is increasingly tested as the list of negatives lengthens. There is a lack of visionary policies during an election campaign and stimulatory spending is contradicting the aims of tighter monetary policy.

  • 28 April 2022

Latest Updates

In praise of our unique democracy and its sausage

For all the shortcomings of our political campaigns, our election process is the best. We are blessed with honest administrators and procedures that we all trust to hand over power peacefully, with a big snag. 

Investment strategies

Is the investing landscape really different this time?

Many market analysts argue that the pandemic has changed everything but we must judge whether the circumstances are as drastic as billed. A quick review of four major events helps decide if this time is different.

Economy

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Retirement

When will I retire? Economic impact of an ageing population

About 39% of the labour force is aged over 45. Intergenerational reports highlight the challenges of an ageing population and the impacts on consumption patterns, dependencies, public finances and economic growth.

The real story behind the crypto crash

The recent sell-off in the crypto market and its trigger - the collapse of the Terra UST coin - has affected many institutions either holding or trading crypto assets, including crypto fund managers.

Investment strategies

Cash is the nightingale, the bird in the hand

The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.

Strategy

Book review of 'Putin’s People' and his motivation for war

Author Catherine Belton argues Putin’s sole ambition is to hold onto power. Her book seeks to understand why Putin invaded Ukraine after he became isolated and out of touch with reality during the pandemic.

Sponsors

Alliances

© 2022 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. 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.