How do SMSFs invest?

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SMSF investment patterns
Top 10 SMSF investments
Use of ETFs and managed funds
Top 10 ETFs and managed funds
Most SMSFs take a balanced approach

Nobody is suggesting you should follow the crowd. But it’s always interesting to find out how the other half lives. Or more precisely, how other Australians are investing their super.

Are people who actively manage their retirement savings in a self-managed super fund (SMSF) doing things differently to members of large mainstream super funds? And if so, where are they putting their money?

There are no comprehensive statistics on how Australians invest their super but there are glimpses of asset allocation patterns within the mainstream and SMSF sectors.

SMSF investment patterns

SMSF administrator SuperConcepts recently surveyed the investments of around 4,500 of its client funds to see how they compared with mainstream APRA funds.

The survey looked at both overall asset allocation and the most popular shares and managed investments.

A note on statistics

While 4,500 funds is a relatively small sample of the more than 600,000 SMFs in Australia, it is larger than many other surveys and relies on actual data, not self-reporting.

SuperConcepts executive manager, SMSF technical and strategic solutions, Philip La Greca says the funds surveyed had combined assets of just under $7.5 billion, with average funds under management of approximately $1.8 million, making them larger than the industry average of about $1.4 million. The surveyed funds were also more likely to be advised than the industry average.

The Australian Prudential Regulation Authority (APRA) is the regulator of mainstream funds including industry, corporate and retail funds. APRA releases quarterly statistics, including aggregated asset allocation across the sector. For details of the actual asset allocation of a particular fund option, you need to check the fund’s website or annual report.

SMSFs are regulated by the Australian Taxation office (ATO). The ATO also publishes quarterly statistics, including asset allocation, but this is based on tax return data which shows how SMSFs invest, but not what underlying assets they invest in. For example, ‘listed trusts’ includes investments in exchange traded funds (ETFs), but not what those funds invest in. It could be local or global shares, property or bonds, but there is no way of knowing. And while ‘overseas shares’ includes direct holdings in companies listed on overseas sharemarkets, it doesn’t capture international shares held via a managed fund or ETF. Consequently, SMSF international shareholdings appear much lower than they are in fact. There can also be a lengthy time lag with ATO data because it must wait until SMSFs submit their annual reports, which can be up to 10 months after the end of the financial year.

By comparison, the SuperConcepts survey is based on what 4,500 SMSF trustees were actually doing, in terms of the investments they held and their dollar value, as at 31 March 2022.

The table below shows the overall asset allocation breakdown as of 31 March 2022.

Sector	SMSF survey (%)	APRA funds (%)
Cash and short-term deposits	12.2	9.1
Australian fixed interest	8.4	10.0
International fixed interest	2.1	7.9
Australian shares	40.0	28.5
International shares	16.4	27.0
Property	16.0	8.5
Other (including infrastructure, cryptocurrency, commodities, and collectables)	4.9	9.0
Total	100	100

Source: SuperConcepts

Two big differences pop out here:

SMSFs have a higher level of cash and liquid assets. While the ATO and others have criticised SMSF trustees in the past for holding too much cash, the preference may come down to a higher proportion of SMSF members in retirement phase (45% of SMSFs are partly or fully in retirement phase according to the ATO). The more members a fund has in retirement phase, the more cash and liquid investments it needs to cover benefit payments.
APRA funds have significantly higher exposure to international shares and fixed interest. It can be argued that APRA funds find it easier to access overseas markets whereas SMSF investors are more comfortable buying shares in companies they are familiar with directly on the ASX. Although these days it’s just as easy for personal investors to access international shares and fixed interest via an exchange-traded fund (ETF) or a managed fund, buying shares in particular companies on an overseas exchange is more difficult.

Interestingly, these differences are not so stark when you group assets. For instance, cash and fixed interest combined amount to 22.7% for SMSFs and 27.0% for APRA funds. Similarly, local and international shares (56.4% vs. 55.5%) and property and other (20.9% vs. 17.5%).

SuperConcepts argues that the differences within these asset groupings are driven by access to different markets. While big funds can invest directly in large infrastructure projects with reliable income streams, SMSF investors may be pursuing a similar strategy with real property.

Top 10 SMSF investments

While market access may explain some of the difference in asset allocation, it doesn’t explain everything.

The table below shows the top 10 investments by value held by SMSFs at 31 March 2022.

Ranking	Investment
1	Commonwealth Bank
2	BHP Billiton
3	National Australia Bank
4	CSL
5	Macquarie Group
6	ANZ
7	Westpac Banking Corporation
8	Telstra Corporation
9	Wesfarmers
10	GHD Group

Source: SuperConcepts

As you can see, they are all Australian shares and together they accounted for more than 12% of the total SMSF assets held by the surveyed funds. The major banks dominate, along with market heavyweights BHP and Telstra.

Not a single managed fund or ETF made the SuperConcepts’ top 10 – they first appear at numbers 15 and 17 on the list of popular investments ranked by dollars invested.

One thing the top 10 have in common, apart from being household names and easy to access, is dividends. Just as SMSFs in retirement phase hold higher levels of cash to fund their daily income needs, high dividend paying shares are prized for their regular income stream.

The Investment Trends SMSF Report 2022 found trustees aged 45–54 held shares in an average of 13 listed companies, while those aged 55–64 held an average of 14 shares and trusted aged 65-plus held an average of 19.

While this is a good number of shareholdings, SMSF investments are arguably too concentrated in the banking sector. But if you add investments in managed funds and ETFs, diversification improves markedly.

See also the top 20 Australian shares and International shares invested in by SMSFs.

Use of ETFs and managed funds

ETFs and managed funds perform an important role for SMSF investors who may not otherwise be able to access international markets or diversify across and within all the major asset classes.

Despite the growing profile of ETFs in the Australian market, managed funds are still the preferred investment vehicle for SMSFs. Not only have managed funds have been around for much longer than ETFs, but they also offer a wider choice of investments.

As the table below shows, 31% of SMSF investments by value are via managed funds and ETFs, although managed funds account for the lion’s share at 25.3%.

	ETFs % of dollar value	Managed funds % of dollar value
Cash	0.0	0.6
Fixed interest	0.6	5.5
Australian shares	1.5	6.3
International shares	3.0	9.7
Property	0.4	1.7
Other	0.2	1.5
Total	5.7	25.3

Source: SuperConcepts

ETFs and managed funds are most used for exposure to international shares, while managed funds are also used across fixed interest and Australian shares.

SMSFs have very low exposure to international fixed interest overall, perhaps due to access issues. But they do have meaningful allocations to Australian fixed interest, with almost half their exposure via direct investments in hybrids, capital notes or loans.

Top 10 ETFs and managed funds

The table below shows the most commonly held ETFs and managed funds ranked by dollar value as at 31 March 2022.

Ranking	Investment
1	Vanguard Aust Shares Index ETF
2	iShares S&P 500 ETF
3	Platinum International Fund
4	iShares Global 100 ETF
5	Magellan Global Fund
6	ANZ Private Global Equities Fund
7	Vanguard Australian Shares Index Fund
8	Listed Magellan Global Fund
9	Vanguard MSCI Index International Shares ETF
10	Vanguard International Shares Index Fund

Source: SuperConcepts

It is still relatively difficult to access direct investments in international shares, so it’s not surprising that global share funds account for eight of the top 10 ETFs and managed funds listed above.

While SMSFs hold large sums in direct Australian shares, as mentioned earlier, they appear to be using Australian share funds for diversification. The two Australian share funds that make the top 10 are index funds which provide passive exposure to the entire market.

See also the top 20 managed funds and ETFs invested in by SMSFs.

Most SMSFs take a balanced approach

The SuperConcepts survey provides further evidence, if it was needed, that SMSFs are investing responsibly, albeit with a skew towards Australian shares. But when broad asset categories are combined, SMSF asset allocations are roughly in line with mainstream APRA funds.

Most APRA fund members in accumulation phase are invested in their fund’s default Balanced option with anywhere from 41–80% of their money in growth assets, mainly shares and property.

Chant West senior research manager Mano Mohankumar says most pension fund members of large public super funds are also invested in a Balanced option. He says meaningful numbers are also invested in a Conservative Balanced option with 41–60% growth assets.

The labels applied to premixed investment options differ from fund to fund. One fund’s Balanced option with 60% growth assets may be another fund’s Growth option, so it’s important to look beyond the label to the actual breakdown of asset classes. You can find this in your fund’s annual report or on their website.

Learn more in SuperGuide articles What is a growth asset? Time to set some standards and Balanced, Growth, Defensive: What’s in a name?

Retirees who belong to super funds with a Lifestage approach to asset allocation are more likely to be invested in a Conservative option.

Lifestage (or lifecycle) funds progressively reduce risk assets as members age. According to Chant West, the median allocation to growth assets for Lifestage fund members born in the 1940s and 1950s, the vanguard of the Baby Boomer generation who are now retired or close to it, is 46% and 53% respectively.