Exchange-traded funds (ETFs) continue to cement their role in SMSF portfolios, with roughly one in three (32.6%) Class SMSFs holding them, representing the only major asset class growth in 2023–24. This puts ETFs on a par with traditional managed funds and direct property, despite being a relatively young investment product.
ETFs were launched in the US in the 1990s and took off globally in the noughties. Global assets under management reached a phenomenal US$13.1 trillion as at June 2024.
In Australia, there are now 350 ETFs listed on the ASX, valued at more than $200 billion.
As the name suggests, ETFs can be bought and sold on the ASX like ordinary shares but offer the diversification of managed funds.
Each ETF is designed to reflect the performance of a particular market – whether that’s a share index such as the ASX200 or the S&P500, a grouping of national markets such as Emerging Markets, an industry such as Healthcare or an asset class such as Global Fixed Interest.
SMSF investors have embraced ETFs because they offer a simple, easy to trade, low-cost way to diversify, especially when it comes to global markets. Because most ETFs are passively managed – tracking an entire index rather than picking winners – fees are generally low.
Fees range from as little as 0.03% to 1.89%, with the average management expense ratio (MER) around 0.55%. Index-tracking ETFs have the lowest fees, while thematic of active ETFs typically have higher fees. And, as we all know, low fees boost net returns.
As well as cost and ease of trading, ETFs allow self-directed investors to plug gaps in their portfolio as well as make tactical changes to their asset allocation in response to market moves.
Financial advisers have also come on board, as ETFs offer a simple way of building a diversified portfolio, often using a core and satellite approach. The core component generally includes broad asset classes such as Australian or US shares, while the satellite component may include active or thematic components such as semiconductors or climate change.
While 32.6% of Class SMSFs held ETFs in June 2024, ETFs accounted for just 5.4% (or $17.7 billion) of total SMSF assets. However, as a sign of their growing popularity, this was up 15.4% from 4.72% the previous year.
International and domestic ETFs
As you can see in the table below, the most popular ETFs are generally low cost and split almost 50:50 between domestic and international funds. Seven of the top 10 provide exposure to international shares and the remainder domestic shares.
That said, Vanguard’s Australian Shares Index ETF and Australian Property Securities Index ETF continue to rule the roost, held by 13.1% and 12.3% of SMSFs respectively. While Vanguard’s Australian Shares Index ETF also tops the rankings for percentage of total SMSF investments, its Property Securities Index ETF represents just 1.9% of investments.
The iShares S&P 500 ETF is the third most popular – held by 11.7% of Class SMSFs – but ranks second in terms of total SMSF investments at 5%, up from 2.8% the previous year. This ETF provides investors with exposure to booming tech stocks such as Apple, Google, Microsoft and NVIDIA for a low management fee of just 0.04% per year.
The booming tech sector, and the outperformance of international shares more generally when compared to Australian shares, was also behind the 49% surge of inflows into international ETFs in the six months to June 2024.
Magellan continued its fall from grace, with its Global Fund dropping from 7th most popular to 19th. Class commented that the shift indicates SMSF investors primarily access the fund through advisers’ platforms as unlisted managed funds, rather than directly via stockbrokers as an ETF. Similarly, Magellan’s Infrastructure Fund fell from 11th to 17th most popular.
20 most popular ETFs invested in by SMSFs*
The top 20 list below is ranked by the percentage of SMSFs holding these ETFs, rather than the percentage each security makes up of total SMSF investments in ETFs, although both figures are provided in the table.
| Rank | ETF name | ETF name | % of funds with ETFs that hold this security | % of total SMSF ETF investments** |
|---|---|---|---|---|
| 1 | VAS | Vanguard Australian Shares Index ETF | 13.1% | 6.4% |
| 2 | VAP | Vanguard Australian Property Securities Index ETF | 12.3% | 1.9% |
| 3 | IVV | iShares S&P 500 ETF | 11.7% | 5.0% |
| 4 | QUAL | VanEck Vectors MSCI World ex-Australia Quality ETF | 11.0 | 3.4% |
| 5 | VGS | Vanguard MSCI Index International Shares ETF | 10.1% | 3.8% |
| 6 | VEU | Vanguard All World Ex US Shares Index ETF | 10.0% | 2.1% |
| 7 | IOO | iShares Global 100 ETF | 8.3%% | 3.2% |
| 8 | VTS | Vanguard US Total Market Shares Index ETF | 8.1% | 2.8% |
| 9 | NDQ | Betashares Nasdaq 100 ETF | 7.9% | 2.2% |
| 10 | VHY | Vanguard Australian Shares High Yield ETF | 7.4% | 2.3% |
| 11 | VGAD | Vanguard MSCI Index International Shares (Hedged) | 7.0% | 2.4% |
| 12 | A200 | BetaShares Australia 200 ETF | 6.9% | 2.0% |
| 13 | AAA | Betashares Australian High Interest Cash ETF | 6.9% | 1.8% |
| 14 | STW | SPDR S&P/ASX 200 Fund | 6.7% | 2.9% |
| 15 | MVW | Vaneck Vectors Australian Equal Weight ETF | 6.6% | 1.8% |
| 16 | HBRD | Betashares Active Australian Hybrids Fund | 6.6% | 1.9% |
| 17 | MICH | Magellan Infrastructure Fund | 6.4% | 0.9% |
| 18 | IXJ | iShares Global Healthcare ETF | 5.9% | 1.2% |
| 19 | MGOC | Magellan Global Fund | 5.7% | 1.9% |
| 20 | IOZ | iShares Core S&P/ASX 200 ETF | 5.6% | 1.9% |
| Total (Percentage that the top 20 make up of total SMSF investments in ETFs) | 51.7% | |||
Source: Class. Data as of 30 June 2024
*Data sourced from 181,862 SMSFs that use Class software.
*Percentage each security makes up of the total SMSF ETF investments e.g. Vanguard’s Australian Shares Index ETF accounts for 6.4% of the total SMSF investments in ETFs.
There are more than a dozen ETF providers in Australia, but the market (and the Class top 10) is dominated by Vanguard with 23.5% of ETFs held, Betashares with 23.2%, BlackRock with 18.4% and VanEck with 13.8%.
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