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Despite a second year of COVID disruptions and volatile share prices, SMSFs held their course in the year to June 2021. They continue to invest heavily in Australian bluechip shares, which offer a degree of safety along with the potential for capital gain and dividend income.
These companies are household names Australians have grown up with – think the big four banks plus Macquarie Bank, mining heavyweights BHP and Woodside Petroleum, Telstra and the big retailers Wesfarmers, Coles and Woolworths. 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 build their own diversified portfolio across a range of industries according to their own needs for long-term growth, create a sustainable income stream from dividends and reap the tax advantages of dividend franking credits.
During a time of historically low interest rates, the average dividend yield on Australian shares is 3.5% and most of the shares in the Top 20 yield significantly more. For all these reasons, Australian shares are the most popular investments among SMSFs, with 93% of funds holding them. This compares with less than 7% of funds holding direct international shares and 11% with traditional managed funds. ETFs are also rapidly gaining acceptance, with almost 35% of SMSFs now holding them.
Of course, picking shares and monitoring them takes time and effort but it does have the 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 BGL data, as of 30 June 2021 direct investment by SMSFs in domestic listed securities is heavily concentrated in blue chip stocks that 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.
20 most popular Australian shares invested in by SMSFs
| Rank | Security code | Company | % of Funds with domestic shares that hold this security | % of total SMSF domestic share investments* |
|---|---|---|---|---|
| 1 | WBC | Westpac | 42.6% | 6.2% |
| 2 | NAB | NAB | 41.1% | 8.0% |
| 3 | BHP | BHP | 40.3% | 5.1% |
| 4 | TLS | Telstra | 39.3% | 2.1% |
| 5 | CBA | CBA | 39.3% | 12.5% |
| 6 | ANZ | ANZ | 38.5% | 4.5% |
| 7 | WES | Wesfarmers | 30.3% | 6.8% |
| 8 | WPL | Woodside Petroleum | 25.8% | 0.7% |
| 9 | COL | Coles | 22.5% | 0.4% |
| 10 | WOW | Woolworths | 22.2% | 1.9% |
| 11 | CSL | CSL | 21.2% | 2.0% |
| 12 | MQG | Macquarie Group | 17.8% | 2.7% |
| 13 | RIO | RIO Tinto | 14.5% | 1.3% |
| 14 | TCL | Transurban | 14.4% | 2.6% |
| 15 | S32 | South32 | 13.3% | 0.1% |
| 16 | SYD | Sydney Airport | 11.5% | 0.6% |
| 17 | AGL | AGL Energy | 10.1% | 0.2% |
| 18 | AMC | Amcor | 9.8% | 0.3% |
| 19 | SUN | Suncorp Group | 9.7% | 0.8% |
| 20 | SHL | Sonic Healthcare | 9.5% | 0.2% |
Source: BGL (bglcorp.com.au). Data as of 30 June 2021
As you can see, direct investment by SMSFs is concentrated in the big four banks that take out four of the top six spots, with Macquarie Group also remaining in the top 20. Heavyweights BHP and Telstra round out the top six.
While some of these companies have shuffled positions, it’s the same top six as the previous year. In fact, packaging group Amcor is the only new face in the top 20, edging out Origin Energy which fell one place to 21.
Despite a second year of COVID-linked market tremors in the first half of 2020, and the previous fallout from the Banking Royal Commission, SMSFs have barely changed their bank holdings.
Ever since the GFC, the big banks have been prized for their reliable income stream and high dividend yields at a time of falling interest rates. The booming Australian residential property market has also boosted their loan books. While bank dividends may still be better than the near zero interest rates on offer from term deposits, it can no longer be taken for granted that the banks will provide the growth and income investors have come to expect and depend on.
While global interest rates are starting to rise, which traditionally reduces the appeal of shares, Australia’s cash rate remains at an historic low of 0.1%. The Reserve Bank has indicated it won’t lift rates until 2023–24, or until inflation is sustainably within its 2% to 3% target range, unemployment is closer to 4% and wages growth nearer 3%.
That said, the dividend yields from Australian shares are still far better than yields from bank deposits and other popular asset classes.
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