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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.
The table below shows the overall asset allocation breakdown as of 31 March 2022.
|SMSF survey (%)
|APRA funds (%)
|Cash and short-term deposits
|Australian fixed interest
|International fixed interest
|Other (including infrastructure, cryptocurrency, commodities, and collectables)
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.
|National Australia Bank
|Westpac Banking Corporation
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.
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
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.
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.
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.
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.