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.
They’re some of the biggest companies in Australia, offering a degree of safety along with the potential for capital gain and dividend payouts, and it’s little surprise that SMSFs are heavily invested in the largest 20 domestic shares.
These are household names which most Australians have grown up with – think BHP Billiton, Telstra, Commonwealth Bank, Woolworths etc. – and they offer investors an opportunity to buy shares directly in the companies they believe will deliver long term returns. Buying shares directly also means it’s possible to diversify across a range of industries to reduce market volatility on returns.
Shares are the most popular asset class among SMSFs that make up domestic listed securities at 78.2% followed by debt and hybrid securities at 8%, ETFs at 7.4% and stapled securities at 5.4%.
67.4% of SMSF hold domestic listed securities, and they represent 36.3% of all SMSF assets.
Shares in blue chip companies tend to provide a regular income in the form of high dividends and for SMSFs these can also be reinvested to “turbocharge” a portfolio of shares.
Of course picking shares, and tracking them, takes time and effort but it does have the potential to grow wealth over the medium to long term. According to Class’ data, as at September 30 2018, direct investment by SMSFs in domestic listed securities is highly concentrated in the largest 20 domestic shares.
The top 20 list below is ranked by the percentage of SMSFs that hold these shares, rather than the value of assets that SMSFs have invested in those shares, although both figures are provided in the table.
|Rank||Code||Description||% of Funds with Domestic Listed Security Securities that hold this security||% of total SMSF Domestic Listed Securities investments*|
|1||TLS||Telstra Corporation Limited||46.8%||2.8%|
|2||WBC||Westpac Banking Corporation||46.8%||5.3%|
|3||BHP||BHP Billiton Limited||45.1%||5.0%|
|4||NAB||National Australia Bank Limited||43.5%||4.7%|
|5||CBA||Commonwealth Bank Of Australia||43.4%||6.2%|
|6||ANZ||Australia And New Zealand Banking Group Limited||42.7%||4.5%|
|8||WPL||Woodside Petroleum Limited||28.4%||1.9%|
|9||WOW||Woolworths Group Limited||26.5%||1.6%|
|11||RIO||Rio Tinto Limited||19.7%||1.5%|
|13||TCL||Transurban Group – Ordinary Shares/Units Fully Paid Triple Stapled||16.8%||1.1%|
|14||MQG||Macquarie Group Limited||16.5%||2.0%|
|15||QBE||QBE Insurance Group Limited||14.9%||0.6%|
|16||CYB||Cybg PLC – Cdi 1:1 Foreign Exempt Lse||14.1%||0.1%|
|17||SYD||Sydney Airport – Fully Paid Stapled Securities Us Prohibited||13.7%||0.7%|
|18||RHC||Ramsay Health Care Limited||12.6%||0.6%|
|20||ORG||Origin Energy Limited||12.4%||0.6%|
Source: Class (class.com.au). Data as at 30 September 2018
Source: Class (class.com.au). Data as at 30 September 2018
The data reveals that SMSF investment in the top 20 shares represents 46.7% of all investment in domestic listed securities, but this represents a reduction in total investment from June 2016, which was at 50.2% for the top 20 shares.
Of this total investment, the big 4 banks dominate the investing landscape through SMSFs with 20.7% of domestic listed securities, but this is also a drop from 23.8% in June 2016.
So why a significant drop in total investment in shares by SMSFs, and with banks in particular?
The answer to the second part of that question is relatively easy. The Banking Royal Commission exposed corruption along with widespread misconduct, poor behaviour and regulatory inaction.
The reputational damage to the banks is obvious, along with the expected $2.4 billion in fines and compliance programs, but the real cost is only just starting to kick in as the banks’ earning potential begins to weaken because of tighter lending standards which will reduce the number and value of loans they’ve been writing up. The banks’ rivers of gold are about to dry up with Deutsche Bank predicting a fall in earnings of up to 40% by 2021.
And the first part of the above question … why a significant drop in total investment in shares overall by SMSFs?
The answer is a little more opaque and in part could be explained by the fact that the investing landscape is constantly changing and SMSFs are gaining access to more varied options.
But the number one favourite share investment with SMSFs, Telstra, has had a rough couple of years and the overall percentage of SMSFs who invest with the telco has dropped from 55% to 46.8%. Even more importantly, the total value of investments by SMSFs has more than halved from 5.9% to 2.8%.
The reason? Telstra shares were trading at $5.68 on July 18, 2016. By October 1, 2018, they’d fallen 43% to $3.21, and into 2019 its shares were well below $3.00. Its consistent downward trajectory has undoubtedly caused some SMFSs to question ongoing investment in the telco giant.
Between NBN roll-out challenges, network outages and a $10 million Federal Court fine for misleading customers, Telstra has struggled to protect its brand and value proposition in an increasingly competitive telco space.
Two high profile companies dropped out of the top 20 investments for SMSFs between 2016 and 2018 in Medibank Private and energy company Santos.
Health insurer Medibank Private has struggled to convince shareholders of its value proposition along with a raft of incentives and a “priority program” for longstanding members.
Natural gas producer Santos also fell out of favour with SMSFs after it reported a loss of $640 million for the first six months of 2017, which followed on from the previous year’s $1.4 billion loss.
They’ve been replaced by a couple of market darlings in Sydney Airport and Ramsay Health Care, with the latter a reflection of the demand for services and products out of the health care industry.
Sydney Airport is reaping the benefits of a robust inbound tourism market, particularly from Asia, which is helping drive passenger numbers, net profit and total revenue year on year. This, combined with its strong balance sheet, means it is able to deliver high dividends to investors although this business does have some exposure to external shocks that can hurt the aviation industry.
Thanks to rising demand for health services, driven largely by an ageing population, Ramsay Health Care is also a solid business which delivers dividends, although it does have a high PE of 30 which makes it technically an expensive stock to buy. Ramsay is Australia’s largest provider of private hospitals in Australia and is among the top five operators globally with assets in the UK, France, Malaysia and Indonesia.
Also in the health space, CSL has gained the attention of SMSFs as a global biotechnology manufacturer that researches and develops influenza vaccines, among other serious medical conditions.
CSL has been routinely posting double digit growth and has forecast a rise of between 10 and 14 percent in FY19. Despite its relatively high PE ratio of 36, which also makes this an expensive stock to buy, many investment analysts recommend this as part of a “recession proof” portfolio.