Which asset classes are popular with SMSFs?

We’ll get to those key differences further down, but first we’ll take a look at the fundamentals driving investment strategies by SMSFs across both stages.

According to a 2017 report published by the CBA and the SMSF Association, the main reasons for setting up a SMSF included:

• 59% said to achieve better returns
• 53% said to take more control over personal finances
• 39% said to access a wider range of investment options
• 32% said to be more agile to take advantage of investment opportunities
• 15% said to invest in property through my super

The breakdown of popular assets with SMSFs

Shares in listed companies are the favoured investment choice by all SMSFs with just under 28% of capital invested in this asset class, according to ATO figures from September 2018.

Cash and term deposits attract just under 24% of SMSF investment and when you combine that with shares, it means the percentage of the two asset classes sits at just over 50% of total SMSF assets.

Asset class	Value ($m)	Percentage of total
Listed shares	$200,992	27.7%
Cash and term deposits	$171,356	23.6%
Unlisted trusts	$80,726	11.1%
Non-residential real property	$71,322	9.8%
Limited recourse borrowing arrangements	$42,857	5.9%
Residential real property	$36,809	5.1%
Other managed investments	$36,128	5.0%
Listed trusts	$31,474	4.3%
Other assets	$19,984	2.8%
Debt securities	$11,180	1.5%
Unlisted shares	$8,240	1.1%
Overseas shares	$6,119	0.8%
Loans	$4,903	0.7%
Other overseas assets	$2,522	0.3%
Overseas managed investments	$865	0.1%
Collectables and personal use assets	$365	0.1%
Overseas residential real property	$310	0.04%
Insurance policy	$167	0.02%
Overseas non-residential real property	$147	0.02%

Source: ATO (December 2018)

According to ATO figures from 2016, just over 97% of SMSFs in total held assets in cash and term deposits while 61% held listed shares. In terms of percentage of assets held, the ATO figures also confirm the popularity of cash and shares with SMSFs in both the accumulation and retirement phase.

Asset class	Value of assets held by accumulation phase SMSFs	Value of assets held by retirement phase SMSFs	SMSFs holding those assets
Cash and term deposits	25.3%	24.5%	97.23%
Other assets	2.9%	2.7%	80.89%
Listed shares	22.6%	32.7%	61.63%
Listed trusts	3.8%	5.0%	30.26%
Unlisted trusts	9.1%	10.4%	22.02%
Non-residential real property	11.6%	9.9%	13.53%
Other managed Investments	4.5%	5.3%	11.26%
Residential real property	6.8%	3.4%	8.72%
Debt securities	0.7%	1.9%	8.06%
Limited recourse borrowing arrangements	9.4%	1.5%	6.92%
Unlisted shares	1.2%	1.0%	6.80%
Overseas shares	0.7%	0.6%	4.68%
Other overseas assets	0.5%	0.4%	2.91%
Loans	0.6%	0.7%	2.70%
Collectables and personal use assets	0.1%	0.0%	0.54%
Overseas managed investments	0.1%	0.1%	0.47%
Overseas residential real property	0.1%	0.0%	0.16%

Source: ATO (2015-2016)

However, while cash and term deposit holdings are similar across both SMSF groups at 25.3% and 24.5% respectively, it appears that retirement phase SMSFs are more inclined to invest higher levels of capital into listed shares. Yield, and the need for income from it, would seem the logical reason, as confirmed by Class, an SMSF administration software company, in its special 2018 report into the preferences of retirement phase SMSFs. We cover that further later in this article.

There is also a significant proportion of SMSFs invested in listed and unlisted trusts. The difference between the two is that a listed property trust is traded on the stock market while unlisted trust is privately held and there is no public market.

Unlisted trusts attract 11.2% of total investment funds by all SMSFs, with listed trusts at 4.2%.

An interesting point to note is that the higher the value of a SMSF, the more likely it is to be invested in unlisted trusts and listed shares, and the less likely to be invested in cash and term deposits.

Conversely, and generally speaking, the lower the value of the SMSF the more likely it is to be invested in cash and term deposits while holdings in listed and unlisted trusts tends to be relatively low.

Asset class	Value of assets in SMSF
	$1-$50k	$50-$100k	$100-$200k	$200-$500k	$500k-$1m	$1-$2m	$2-$5m	$5-$10m
Listed trusts	1.34%	2.33%	3.36%	4.29%	4.79%	5.04%	4.65%	4.02%
Unlisted trusts	2.28%	4.56%	6.12%	6.73%	7.69%	9.07%	11.00%	13.32%
Other managed investments	1.08%	1.77%	2.62%	3.84%	4.41%	5.02%	4.97%	4.99%
Cash and term deposits	54.11%	48.81%	45.71%	31.81%	27.04%	26.57%	24.00%	20.04%
Debt securities	0.17%	0.26%	0.36%	0.72%	1.18%	1.51%	1.84%	2.04%
Loans	1.30%	1.76%	1.35%	0.65%	0.44%	0.47%	0.56%	0.73%
Listed shares	23.64%	24.07%	24.54%	24.90%	26.95%	29.87%	30.72%	30.67%
Unlisted shares	2.29%	2.18%	1.79%	0.96%	0.61%	0.68%	0.87%	1.31%
Limited recourse borrowing arrangements	0.03%	0.20%	1.27%	11.22%	10.74%	4.81%	2.83%	2.73%
Non-residential real property	0.85%	1.72%	3.00%	5.48%	6.74%	8.37%	10.14%	11.27%
Residential real property	0.90%	2.16%	2.90%	5.51%	6.28%	5.34%	4.82%	4.06%
Other assets	10.37%	8.02%	5.21%	2.82%	2.23%	2.24%	2.36%	2.91%
Overseas shares	0.63%	0.67%	0.65%	0.55%	0.46%	0.54%	0.72%	1.18%

Source: ATO (2015-2016)

Other investment choices by SMSFs

Across all SMSFs real estate is a popular investment choice especially in the commercial sector, with 13.53% of SMSFs holding this asset (according to the ATO’s 2016 figures), with 9.4% of total money invested (ATO 2018 figures). For residential property, those figures are 8.72% and 4.9%.

One of the lesser known investments include limited recourse borrowing arrangements, which is debt in which the creditor has limited claims on the loan in the event of default.

Investments by SMSFs in overseas assets remains comparatively low even for international shares which are at less than 1%.

Asset concentration among SMSFs

In terms of asset concentration, 13.7% of SMSFs in accumulation phase had 100% invested in just one asset type.

Asset concentration	Proportion of SMSFs in accumulation phase	Proportion of SMSFs in retirement phase
100%	13.7%	6.9%
Up to 90%	37.2%	22.6%
Up to 80%	52.0%	34.8%
Up to 70%	64.6%	47.7%
Up to 60%	76.7%	62.3%
Up to 50%	89.5%	79.5%

Source: ATO (2015-2016)

Across all SMSFs, 9.1% had 100% of their assets invested in cash and term deposits which indicates many SMSFs have decided not to follow general investment advice which recommends a diversified portfolio as a defence against asset falls in any one investment class.

Differences between accumulation and retirement phase SMSFs

In a 2018 report SMSF Administration software company Class revealed some key differences in the asset preferences of accumulation phase and retirement phase SMSFs.

SMSFs in retirement phase make up around half of the 600,000 funds and Class notes that “these funds are generally expected to be more conservative and are stereotyped as chasing yield”.

According to Class the average age of a retirement SMSF member is 70 years, compared to 52 for accumulation SMSF members.

And with nearly 20 more years to accumulate wealth, SMSFs with at least one member in retirement phase have an average balance that is over 151% higher than accumulation SMSFs – $1,939,985 compared to $772,947. In fact, retirement SMSFs make up half of all funds, but they hold 71% of total net assets.

In terms of asset allocation, some key findings include the fact that retirement phase SMSFs are three times as likely to hold defensive debt securities as accumulation SMSFs. And although retirement phase funds only hold slightly more cash than accumulation SMSFs, they allocate a much higher percentage to Australian shares.

Investment in domestic equities is at 33% of gross assets for retirement phase SMSFs versus 23% for accumulation phase SMSFs.

“The strong [retirement phase] SMSF preference for domestic shares is likely to be influenced by the fact that franking credits are heavily used by Australian companies and are not generally available for international shares,” the Class report states.

	Asset allocation (% of gross assets)		% of SMSFs holding this asset class
Asset class	Accumulation phase	Retirement phase	Accumulation phase	Retirement phase
Cash and term deposits	21%	22%	100%	100%
Domestic equities	23%	33%	51%	79%
Residential property (including LRBA)	14%	5%	23%	13%
Managed funds	11%	12%	22%	40%
LICs and ETFs	4%	4%	22%	36%
Unlisted trusts	7%	6%	14%	18%
Non-residential property (including LRBA)	13%	9%	13%	13%
Debt securities	2%	4%	10%	30%
Overseas shares	1%	1%	5%	7%
Other assets	4%	4%	24%	28%

Source: Class, 2018

Residential property preferred by accumulation phase SMSFs

In terms of property investment, retirement phase SMSFs have less interest in residential property than accumulation SMSFs. 23% accumulation phase SMSFs hold residential property, representing 14% of their asset allocation, In comparison 13% of retirement phase SMSF hold residential property, representing just 5% of their asset allocation.

Class found that where retirement SMSFs do invest in property, they lean more towards commercial property. “Perhaps this is another example of the [retirement phase SMSFs’] need for income as commercial properties deliver a more reliable and higher rental yield,” the report reasons.

The Class report underscores that fact that retirement phase SMSFs have a very different investment profile to investors in accumulation phase as they need income to live off, and seem to be more risk averse than pre-retirement investors.

If you’d like to learn more about the most popular ETFs, Australian and international shares, managed funds and alternative investments, read the following SuperGuide articles:

• SMSF investment: 20 most popular ETFs
• SMSF investment: 20 most popular Australian shares
• SMSF investment: 20 most popular international shares
• SMSF investment: 20 most popular managed funds
• SMSFs: Top 10 alternative investments