What are the most popular listed investments for SMSFs?

Reading time: 5 minutes

Tracey Spicer talks to Ron Lesh, Managing Director of BGL about what are the most popular shares, managed funds and ETFs that SMSFs invest in.

You can find more information at the links below:

Transcript

Tracey Spicer

Well, today we’re really going to focus on self managed super funds. Some data ha just come out indicating the top 20 shares and funds that self managed super funds invest in. To break down this data we’re joined by Ron Lesh, founder and MD at BGL Corporate Solutions. Hi, Ron.

Ron Lesh

Good morning, Tracey.

Tracey Spicer

Now, so many super funds are often criticised for relying too heavily on Australian shares. In fact, the June figures show over 40% of funds hold the top six holdings, mainly the major banks. Is there an issue in your mind with concentration risk?

Ron Lesh

Well, it depends, I suppose, on what the rest of the rest of the fund is invested in. We’ve always had that concentration risk. That hasn’t really changed really over the last 20 years whenever we’ve looked at data. So is it a problem, well maybe the shares that they’re investing in are a problem, especially around COVID, we’ve seen that the banks haven’t performed particularly well. Telstra’s performing a bit better at the moment and maybe they should be investing in other things.

But I think in terms of long term dividend security, long term growth, and we’ve got to remember SMSFs are a long term investment vehicle, that’s probably not such a bad thing.

Tracey Spicer

So not a big issue. Alright, let’s look at direct international shares then. The top are mostly US China tech giants, as you would expect.

Ron Lesh

Amazon is now number one, that SMSFs invest in, followed by Tesla.

Tracey Spicer

Yes. Yes. Unexpectedly, in a way. And that’s what I wanted to drill down on. Has there been a noticeable shift to big tech, particularly because of the pandemic?

Look, I don’t think there’s been much that much of a shift. Everything that we’ve seen in the past on international shares, a lot of it has been in big tech. In any case, it hasn’t been like in Australia where investors have invested in banks overseas. They’ve tended to invest in things that they couldn’t investing in Australia, and big tech was one of those. Apple, Microsoft were always high on the list. Amazon has probably taken over. Google is very high on the list, and that’s probably not surprising.

Those companies are performing well. Berkshire Hathaway has dropped down the list a little bit this year. But I don’t think that it’s really surprising as to what they’re investing in. And it makes it makes a bit of sense. SMSFs are either doing that through direct securities or they’re doing it through ETFs to get some overseas exposure.

Tracey Spicer

Yeah we’ll get to ETFs in a moment. The big names dominate the managed funds – Platinum, Magellan, Fidelity, but still an interesting diversity as you move through the list. Has there been a decline in traditional managed funds that you’ve been seeing?

Ron Lesh

Look, definitely there’s a decline in managed funds and there has been really over the past four or five years. Not huge amounts. I actually would have thought. I think the managed funds are growing at a slower rate. I think that’s probably more the fact. People aren’t pulling money out of managed funds to put it into other things because the costs of getting in and getting out and and what they lose as a result of that.

But I think new money tends to be going into other things, tends to be going more into ETFs that are lower cost. and similar exposure.

Ron Lesh

Yeah, there are actually 153 ETFs listed in total, which points to an increasing diversity in use of these products. Can you comment on the most popular ETFs and how they’re being used?

Ron Lesh

Yeah I looked at those figures this morning. I was actually a bit surprised because the most popular one is an Australian Shares ETF. So that’s interesting. It may mean that funds that have started up during the year have invested money into an Australian ETF rather than buying securities direct. And the Australian ETF is the Vanguard one that’s based on I think it’s the top 200 Australian companies. So again, they’re covering the top of the top of the market.

The ETFs have always been used for international exposure. I know myself in my own SMSF I purchased and I’m not giving investment advice because I’m not authorised to do so, but I personally purchased the Vanguard US index one many years ago. And I’ve purchased a lot of ETFs based on international securities that give me exposure to particular sectors. So I think that seems to be a common thing that SMSFs are doing. They will first hit the indexes and then after the indexes, look at the sectors and that makes a bit of sense.

We’ve still got to remember the majority of SMSFs are not advised. So these guys are taking recommendations from newsletters, their mate around the barbecue, wherever they happen to get it from. Maybe they look at the market, maybe they look at some technical stuff, maybe they’re using a Selfwealth or a platform that actually helps them to invest better. But as a general rule, they’re not advised. So it’s interesting to see where their money ends up.

Tracey Spicer

That being the case, would you say that their investment process is robust?

Ron Lesh

Well, I don’t know how robust it is. But I think the one thing we can say is. And there’s some data coming out from Rice Warner in the next couple of weeks around SMSFs, the costs of SMSFs and also the returns. We can say that over the last 10 years, SMSFs have performed better than industry funds and retail funds, and that’s in the data. So you’ll see that data coming out next week. It’s quite interesting that when we look at performance over periods of time, SMSFs have performed well.

So whether the process is as robust as one would want it to be necessarily, it seems to be having the right result, which is, I suppose, what’s the most important.

Tracey Spicer

Yes it still seems to work. Looking at the data overall this year, was there anything else that jumped out to you? Any other surprises?

Ron Lesh

No, not really. I was surprised to see Tesla as number two in terms of international shares, but that may be because of valuation rather than numbers. I would have thought that Amazon was first and I would have thought very close to that would have been Google. Microsoft are a little further down the list, so that was interesting.

Australian shares top 20 doesn’t surprise me at all, although none of the Australian tech stocks were really in there. I would have thought more SMSFs would have had shares in things like Xero and Afterpay and things like that. But they don’t seem to be in there as high up as I would have thought.

But maybe that’s historical money. You know, there’s been always been a predominance of money from SMSFs in the banks and Telstra and all those sort of things. And a lot of it even goes back to when when they were floated, when CBA was floated, when Telstra was floated. So quite possibly that’s just a lot of old money and that might change over the next five to 10 years. I don’t know. I look at my own SMSF and I’m reasonably diversified across sectors, so I’m happy with that and I’m getting a good return I’m not complaining.