This article includes the 20 most popular Australian domestic listed securities invested in by SMSFs as at 30 September 2018. This article uses data supplied by Class, an SMSF administration software company, and is based on a statistical analysis of the 160,000+ SMSFs administered using Class software. We thank Class for giving SuperGuide access to such valuable data.
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They’re some of the biggest companies in Australia, offering a degree of safety along with the potential for capital gain and dividend income, so it’s no surprise that SMSFs are heavily invested in the largest 20 ASX listed shares.
These are household names Australians have grown up with – think the big four banks, BHP Billiton, Telstra, Woolworths and the like – and they offer investors an opportunity to buy shares directly in companies they believe will deliver long term returns.
Buying shares directly also allows individual investors to craft their own diversified portfolio across a range of industries according to their own needs for long-term growth, a sustainable income stream from dividends and the tax advantages of dividend franking credits.
Australian shares are the most popular investments among SMSFs, making up the lion’s share (76.8%) of the broader asset class of domestic listed securities. ETFs (8.4%) have overtaken debt and hybrid securities (7.8%) in second spot with stapled securities in fourth place (5.8%).
Taken as a whole, domestic listed securities make up 34.7% of SMSF assets with 67% of funds holding this asset class.
Of course, picking shares and monitoring them takes time and effort but it does have potential to grow wealth in the long run. And because all earnings on investments in your super fund must be preserved until you retire or reach another condition of release, capital gains and dividend income must be reinvested within your fund where they compound over time.
According to Class data, as at 31 March 2019 direct investment by SMSFs in domestic listed securities is heavily concentrated in blue chip stocks which tend to mirror the ASX top 20 listed companies.
The top 20 list below is ranked by the percentage of SMSFs that hold these shares, rather than the value of assets that all SMSFs have invested in those shares, although both figures are provided in the table.
|Rank||Security Code||Description||% of Funds with Domestic Listed Securities that hold this security||% of total SMSF Domestic Listed Securities Investments*|
|1||WBC||Westpac Banking Corporation||48.6%||5.0%|
|2||BHP||BHP Group Limited||46.4%||5.4%|
|3||TLS||Telstra Corporation Limited.||46.2%||2.9%|
|4||NAB||National Australia Bank Limited||45.0%||4.4%|
|5||CBA||Commonwealth Bank Of Australia.||45.0%||6.2%|
|6||ANZ||Australia And New Zealand Banking Group Limited||43.6%||4.2%|
|8||WPL||Woodside Petroleum Limited||29.8%||1.8%|
|9||WOW||Woolworths Group Limited||26.4%||1.7%|
|11||RIO||Rio Tinto Limited||19.4%||1.8%|
|12||MQG||Macquarie Group Limited||18.0%||2.1%|
|14||TCL||Transurban Group – Ordinary Shares/Units Fully Paid Triple Stapled||17.5%||1.4%|
|15||SYD||Sydney Airport – Fully Paid Stapled Securities||13.9%||0.8%|
|16||QBE||QBE Insurance Group Limited||13.3%||0.6%|
|17||CYB||Cybg PLC – Cdi 1:1 Foreign Exempt Lse||13.3%||0.1%|
|18||RHC||Ramsay Health Care Limited||12.9%||0.7%|
|19||AGL||AGL Energy Limited||11.7%||0.8%|
|20||ORG||Origin Energy Limited||11.6%||0.5%|
Source: Class (class.com.au). Data as at 30 March 2010
As you can see, direct investment by SMSFs is concentrated in the banks which make up 42% of the top 20 holdings. The big 4 banks take out 4 of the top 6 spots, with Macqarie Group also remaining in the top 20.
After taking a hit during the Banking Royal Commission, the banks clawed back some ground perhaps because they avoided the harsh penalties many investors expected. There was a slight increase in the percentage of SMSFs holding the big 4 plus Macquarie although the total value of bank holdings fell slightly.
Chart: S&P/ASX 200 Financial-X-A-REIT (1 year to 4 June 2019)
The biggest casualty of the Royal Commission was AMP, which fell out of the top 20 entirely. It was replaced by the only new entrant AGL Energy.
AGL’s share price surged in the early months of 2019 after a 10% lift in December half year underlying profits, a 10% rise in earnings per share and a 2% increase in interim dividend (88% franked). However, it’s shares have recently dropped sharply after some brokers warned it could face earnings pressure ahead with the downward pressure on wholesale power prices.
Chart: AGL share price (October 2018 to 4 June 2019)
Source: Yahoo Finance
Looking ahead, banks and financials are one of the sectors likely to benefit from the re-election of the Morrison Coalition government. Labor proposals to stop some cash refunds of franking credits, remove negative gearing on purchases of existing homes and the halving of the capital gains discount to 25% which had been hanging over the sector will not go ahead.
The banks should also benefit from future interest rate cuts. The Reserve Bank is widely tipped to lower the cash rate from the current low of 1.5% and while the banks have been quick to cut deposit rates, in recent times they have lifted mortgage rates out of cycle.
Also, APRA is considering lowering the 7% mortgage interest rate buffer banks must consider when assessing home loan applications which should provide a boost to home lending. Another positive at the margins is the government’s proposed First Home Loan Deposit Scheme which could help new home buyers secure a loan with a 5% deposit.
Learn more about SMSF investment in the following SuperGuide articles:
- How to invest in infrastructure through an SMSF
- ETFs: How do I use them and what do they cost?
- SMSF guide to hedging
- SMSF investment rules: Collectables and personal use assets
- SMSFs and property: A Super Guide
- The definitive SMSF guide to franked dividends
- What are the SMSF borrowing rules?
- SMSF investment rules: What every trustee should know
- How to create an SMSF investment strategy (including examples)