SMSF investment: What assets do DIY super trustees prefer?

Note: We regularly update this article with the latest data on self-managed superannuation funds (SMSFs) released by the Australian Taxation Office. This article contains the latest data available up to September 2018 (for data on SMSF growth and for asset allocation data as at March 2018).

Each quarter the ATO releases self-managed super fund statistics derived from annual return data. Some of the more interesting data outlines the investments that SMSF trustees choose, and how much SMSF money is invested in the different asset types.

Note: All SMSF statistics in this article are as at 31 March 2018, unless otherwise stated.

The one million super club

Approximately 600,000 SMSFs (595,840) run by more than 1.12 million trustees control roughly $710 billion in total assets ($712.01 billion), as at 31 March 2018, or $682 billion in net assets (total assets less borrowings and other liabilities).

A more impressive statistic is that SMSF trustees control nearly a third of all superannuation money (29.9%) held by Australians in both APRA-regulated super funds and self-managed super funds. In 2004, SMSFs controlled only 20% of all superannuation money. (For more information on the main types of super funds, see SuperGuide article Comparing super funds: Who’s who in the super zoo?).

A fascinating aspect of this growth in SMSFs is that the investment behaviour of the 1.1 million-plus SMSF trustees is capable of influencing investment markets. According to one investment expert, the desire by SMSF trustees for shares paying franked dividends is driving up the prices of high yield shares, such as bank stocks (despite the recent volatility), while another expert claims the SMSF love affair with companies that pay franked dividends is putting the long-term income of SMSF members at risk as companies review dividend policies, and in turn, SMSF trustees are inadvertently creating higher-risk investment portfolios. Other experts are urging SMSF trustees to invest in overseas investments, while some politicians are eyeing SMSFs as a source of funding for major infrastructure projects.

Note: The ALP has announced that it intends to ban franking credit refunds, if it wins the 2019 Federal Election (for more information on the ALP’s policy, see SuperGuide article Guest contributor: ALP’s plan to confiscate franking credits hits retirees).

Another recent example of the clout of SMSF trustees is the interest in SMSF property investment by the professionals in the property market. Due to relaxed borrowing rules (introduced in 2007) and to the ever-growing SMSF fund balances, now averaging nearly $1.2 million ($1,194,965, as at March 2018), estate agents, property developers and banks believe there is money to be made by promoting property, using gearing, to SMSF trustees.

Note: Although the average SMSF balance is nearly $1.2 million, the average SMSF account balance is now roughly $633,000 (based on March 2018 figures of $712.01 billion in SMSF assets and dividing this amount by an estimated 1.124 million SMSF members). The higher-than-industry-average account balances reflect the much older profile of SMSF members, and the need to have substantial assets to justify the cost of running a SMSF.

Another relatively recent example of the financial influence of SMSF investors is the uproar over the Cooper Review (circa 2010) recommending the banning of investment in artwork and other collectibles. The immediate activism of the art world and the coin industry, which successfully killed the Cooper recommendation to ban collectibles in SMSFs (although much stricter storage requirements have since been introduced and took full effect from June 2016,) highlights the importance of the SMSF money to many investment markets in Australia. (For more information on the stricter rules for artwork see SuperGuide article SMSF compliance: Strict rules for artwork and other collectibles).

Three most popular investment classes

Year in year out the three most popular investment classes for SMSF trustees are: direct shares, cash and direct property. See Table 1 below for the full breakdown of SMSF asset allocation.

In 2004, these three asset categories represented two-thirds (66%) of all SMSF investments. As at June 2011, the three asset categories – Australian shares, cash and direct property – represented a massive 75% of all SMSF investments.

As at June 2015, the three main asset categories represented 70.6% of all SMSF assets. SMSFs held 30.44% of fund assets in direct Australian shares, 25.4% in cash and term deposits, and 14.74% in direct Australian property.

As at March 2018, the allocation to the three main asset categories shifted slightly, but still represented similar allocation, namely 67.6% of all SMSF assets. SMSFs held 29.19% of fund assets in direct Australian shares, 22.04% in cash and term deposits, and 16.35% in direct Australian property. See Table 1 below for the full breakdown of SMSF asset allocation.

Over the past 4 years, the allocation of SMSF investment towards listed shares has trended slightly downwards (32.1% as at March 2014, to 30.44% as at June 2015, and 30.3% as at September 2016, and 30.8% as at March 2017, and now 29.19% as at March 2018), while allocations to cash have dropped again (from 28% as at March 2014, to 25.4% as at June 2015, and 24.3% as at September 2016, and 23.3% as at March 2017, and now 22.04% as at March 2017).

Property: Surprisingly, allocations to direct property dropped from 15.9% in March 2014, to 14.74% in June 2015, and but increased again to 15.4% as at September 2016, and increased again to 15.8% as at March 2017, and increased again to 16.35% as at March 2018. Although over the 4-year period (from March 2014 to March 2018), the amount of SMSF money directed to investments via limited recourse borrowing arrangements increased considerably from 1.7% of total assets in March 2014, to 2.954% of total SMSF assets in June 2015, to 3.68% of total assets as at September 2016. The one proviso to this fairly significant increase in LRBA allocation is that the ATO improved its data collection of LRBA statistics from June 2014. The amount of SMSF borrowings as at March 2017 increased to 3.82% of total assets, and increased again to 4.52% as at March 2018.

For more information about property investing and SMSFs, see the following SuperGuide articles:

• Revisited: Is property a good investment for your SMSF?
• SMSFs for Beginners: Can my DIY super fund borrow money?
• Government’s green light on SMSF borrowing, with conditions
• SMSF investment: Borrowing to invest can be the means, not the end
• SMSF borrowing: Investing in property (what’s OK and NOT OK)

LRBA note: The original amount reported by the ATO as allocated to LRBAs in March 2014 was $2.781 billion, while the adjusted amount for March 2014 jumped to $9.081 billion after the ATO improved its data collection. The difference works out to be a threefold increase overnight for March 2014 figures. While this particular increase is due to a statistical adjustment, the ATO also acknowledges some growth in the use of LRBAs since the data collection method was improved. The overall increase in allocation to LRBAs is demonstrated by the roughly 1 percentage point increase in allocations to LRBAs between March 2014 (revised figures) and June 2015, and another three-quarter percentage point increase between June 2015 and September 2016 (although in dollar terms, this represents roughly a $2.2 billion increase in LRBAs, to $27.552 billion), and a marginal increase in the 6 months to March 2017 ($29.944 billion), and again a marginal increase in the 12 months to 31 March 2018 ($32.159 billion).

Asset allocation: the remaining 32.4% of assets

Of the remaining 32.4% of the $712 billion in total SMSF assets (as at March 2018), 15.4% was held in trusts (10.75% in unlisted trusts and 4.65% in listed trusts), 5.6% in ‘other managed investments’ and the remaining 11.4% spread across 12 other categories. See Table 1 below for the full breakdown of SMSF asset allocation.

Thirteen years earlier, as at June 2004, SMSFs held 31% of fund assets in direct Australian shares, 23% in cash and term deposits (and debt securities), and 12% in direct property. Of the remaining 34% of the $127 billion in total fund assets, 21% was held in trusts (10.5% in public trusts and 10.5% in other trusts), 6% in managed funds, and the remaining 7% spread across six other categories.

Does the asset allocation change for larger (or smaller) SMSFs?

The ATO also publishes statistics listing the asset allocations for different fund sizes. The latest data is based on actual return data for the 2016 financial year for specific fund size asset allocation. I compare the 2016 data (extracted July 2017, and latest available information as at September 2018) on allocations for the same fund size as at June 2004. See also Table 2 below for a comparison summary.

Note: The overall observation that I can make from these statistics is that over time, and regardless of fund size, the investment behaviour of SMSFs is spookily similar when looking at total assets invested via the sector, and when looking at different fund sizes. For example:

• For SMSFs valued at between $200,000 and $500,000 million, invariably, roughly two-thirds of SMSF money is invested in three asset classes (direct Australian shares, cash and direct property).
• Based on overall statistics as at March 2018, all SMSFs, on average, invest at least two-thirds of all SMSF money in the three main asset classes. On average, nearly a third of SMSF assets are invested in direct Australian shares (29.19%), just under a quarter is held in cash and term deposits (22.04%), and 16.35% is held in direct property.

The investment breakdown for four different fund sizes is set out below (see also Table 2 below for a comparison summary):

• Fund balance (at least $100,000 and up to $200,000). In 2016, SMSFs of this size held 25% of fund assets in direct Australian shares, 46% in cash and term deposits, and 5.5% in direct property. Of the remaining 23.5% of assets, 9.2% was held in trusts (5.9% in unlisted trusts and 3.3% in listed trusts), 2.9% in ‘other managed investments’ and the remaining 11.6% spread across 12 other categories. In 2004, SMSFs of this size (or more specifically, at least $150,000 and up to $200,000 in assets, due to a recent change in categories reported by the ATO) held 31% in direct Australian shares, 30% in cash, term deposits and debt securities and 10% in direct property. In 2016, there is a greater weighting to cash. The weighting to direct property for this fund size has dropped by nearly half over the 10-year period, which could simply be a consequence of a hike in property prices meaning that SMSFs holding property will also have higher fund balances due to asset revaluations. See Table 2 below for a comparison summary.
• Fund balance (at least $200,000 and up to $500,000). In 2016, SMSFs of this size held 25.9% in direct Australian shares, 31.9% in cash and term deposits and 13% in direct property. Of the remaining 29.2% of assets, 10.8% was held in trusts (6.5% in unlisted trusts and 4.3% in listed trusts), 3.9% in ‘other managed investments’ and the remaining 14.5% spread across 12 other categories. In 2004, SMSFs of this size held 30% in direct Australian shares, 25% in cash, term deposits and debt securities and 12% in direct property. Percentage of property holdings has remained relatively steady over the 10-year period. In 2016, again there is a greater weighting to cash. See Table 2 below for a comparison summary.
• Fund balance (at least $500,000 and up to $1 million). In 2016, SMSFs of this size held 27.5% in direct Australian shares, 27.5% in cash and term deposits and 15.3% in direct property. Of the remaining 29.7% of assets, 12.3% was held in trusts (4.9% in unlisted trusts and 7.4% in listed trusts), 4.6% in ‘other managed investments’ and the remaining 12.8% spread across 12 other categories. In 2004, SMSFs of this size held 31% in direct Australian shares, 22% in cash, term deposits and debt securities and 12% in direct property. In 2016, again there is a greater weighting to cash. See Table 2 below for a comparison summary.
• Fund balance (at least $1 million and up to $2 million). In 2016, SMSFs of this size held 30% in direct Australian shares, 26.6% in cash and term deposits and 16.1% in direct property. Of the remaining 27.3% of assets, 13.9% was held in trusts (8.8% in unlisted trusts and 5.1% in listed trusts) and 5.2% in ‘other managed investments’. The remaining 8.4% was spread across 12 other categories. In 2004, SMSFs of this size held 32% in direct Australian shares, 21% in cash, debt securities and term deposits, 13% in direct property and a 22% weighting to trusts. In 2015, there is a greater weighting to cash and a drop in the money allocated to trusts, compared to 2004 (although in recent years the allocation to trusts has increased but not yet back to the 2004 levels). See Table 2 below for a comparison summary.

Examining very small and very large SMSFs

When examining the very small SMSFs and the very large SMSFs, however, you can notice some clear differences. The smaller SMSFs have a much greater weighting to cash hinting at inactive funds. For example, the SMSFs with balances of less than $50,000 hold more than half (55%) in cash, and the SMSFs with balances of less than $100,000 (but more than $50,000) hold 49.5% of fund assets in cash. In contrast, SMSFS with more than $5 million in assets hold between 15% and 20% in cash, the lowest allocation of cash for all fund sizes. See Table 2 below for a comparison summary.

The smallest SMSFs (less than $50,000 fund balance) have the lowest allocation to direct Australian shares (23.2%), but even so the asset allocation to direct Australian shares from smallest funds to largest SMSFs is a small range from 23.2% through to 31.03%. See Table 2 below for a comparison summary.

Based on the statistics, it appears that the very large SMSFs (more than $5 million) have greater diversification across asset classes although still strikingly similar to the overall asset allocation for the sector. In comparison, the smallest SMSFs (less than $100,000) have 74% to 78% of assets in two asset categories – direct Australian shares, and cash and term deposits. See Table 2 below for a comparison summary.

Table 1: SMSF investments – gross asset allocation across all SMSFs

The table below outlines the gross asset allocations across all SMSFs.

Table 1: SMSF asset allocation (to 31 March 2018)

	June 2004*		June 2011		March 2018
	$ value (millions)	% of total assets	$ value (millions)	% of total assets	$ value (millions)	% of total assets
Listed trusts	13,450	10.5%	16,511	4.1%	33,122	4.65%
Unlisted trusts	13,450	10.5%	37,169	9.2%	76,625	10.76%
Insurance policy	331	0.3%	162	0.04%	110	0.02%
Other managed investments	7,726	6.1%	19,326	4.8%	40,084	5.63%
Cash and term deposits	29,464	23.1%	114,056	28.3%	156,910	22.04%
Debt securities			2,754	0.68%	9,509	1.34%
Loans	1,249	1%	2,921	0.72%	4,552	0.64%
Listed shares	39,740	31%	125,111	31.05%	207,805	29.19%
Unlisted shares	2,320	1.8%	4,725	1.17%	7,155	0.1%
Limited recourse borrowing arrangements			1,400	0.35%	32,159	4.52%
Non-residential real property	14,917*	11.7%	47,521	11.8%	81,505	11.45%
Residential real property	612*	0.5%	14,623	3.6%	34,886	4.9%
Collectibles and personal use assets			713	0.18%	348	0.05%
Other assets	3,187	2.5%	12,404	3.1%	18,155	2.55%
Overseas shares			1,363	0.34%	4,764	0.7%
Overseas non-residential real property			85	0.02%	147	0.02%
Overseas residential real property			141	0.035%	320	0.05%
Overseas managed investments			317	0.08%	864	0.12%
Other overseas assets	854	0.67%	1,704	0.42%	2,988	0.42%
Total Australian and overseas assets ($m)	$127,494	100%	$402,911	100%	$712,008	100%
Borrowings	–		$(4,741)		$(23,966)
Other liabilities			$(3,481)		$(6,317)
Total net Australian and overseas assets ($m)			$394,769		$681,725

*In June 2004, different classifications applied to the SMSF statistics. The writer has allocated the 2004 assets to the closest definition used today. For the specific classifications in place in June 2004 refer to the June 2012 ATO SMSF statistical report,

Source: Adapted and updated from ATO tables in the link above, and from ATO’s SMSF statistical report March 2018 (latest available as at September 2018). Data for June 2011 sourced from previous ATO statistics (www.ato.gov.au). Writer has included percentages and collated data to create a comparison table. In some cases the total percentage for each timeframe is slightly over or slightly above 100%, due to rounding.

Table 2: SMSF investments – Asset allocation based on fund size

The table below outlines the asset allocation based on SMSF fund balance, and compares asset allocation from 2004 with the asset allocation in 2016 (latest information available as at September 2018).

Table 2: SMSF asset allocation (%) based on fund size

Fund balance of SMSF	$100k-$200k		$200K-$500K		$500k-$1m		$1m-$2m
Year	2016	2004	2016	2004	2016	2004	2016	2004
Assets
Listed shares	25.09%	31%	25.88%	30%	27.48%	31%	29.97%	32%
Cash & term deposits	45.77%	30%	31.88%	25%	27.48%	22%	26.55%	21%
Direct property	5.54%	10%	13.02%	12%	15.28%	12%	16.06%	13%
Sub-total	76.4%	71%	70.78%	67%	70.24%	65%	72.58%	66%
Listed trusts	3.25%		4.25%		4.86%		5.08%
Unlisted trusts	5.91%		6.54%		7.43%		8.78%
Other managed investments	2.88%		3.92%		4.61%		5.16%
Sub-total	12.04%		14.71%		16.9%		19.02%
Other investments	11.56%		14.51%		12.86%		8.4%
Total	100%		100%		100%		100%

Source: Figures and calculations based on information contained in ATO’s SMSF statistical report March 2018 (latest available as at September 2018). Data for June 2004 sourced from previous ATO statistics (www.ato.gov.au). Writer has included percentages and collated data to create a comparison table, which is not contained in the ATO document. In some cases the total percentage for each timeframe is slightly over or slightly above 100%, due to rounding.