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Self-managed superannuation funds (SMSFs) offer trustees greater choice and more control over the investments in their fund. Many studies – such as this one in the Australian Journal of Management – confirm that greater choice of investments is one of the more popular motivations for starting an SMSF.
That study, which involved a survey of more than 1000 superannuation members, concluded that “the freedom to choose and monitor investments and the opportunity to minimise tax are the two main reasons that SMSF members nominate as the reason they start or join their own small retirement savings fund.”
In the past, SMSFs have been criticised for being too heavily in cash and fixed income and having little diversity among their equity holdings. But this is changing, and asset allocations are becoming more sophisticated.
What are the most popular asset classes among SMSFs?
The Australian Taxation Office (ATO) publishes a series of comprehensive data on asset allocation every financial year, based on the lodgings of SMSF annual returns. However, because of the lag between the end of the financial year and when trustees need to lodge, and the time it takes to collate the data, the latest annual figures are for the financial year ending in 2019.
The ATO also publishes quarterly estimates of asset allocation breakdown in the table below, sorted for the asset class with the highest allocation.
| Asset type | March 2021 ($m) | As a % of total Australian and overseas assets |
|---|---|---|
| Listed shares | 207,443 | 26.35% |
| Cash and term deposits | 149,390 | 18.98% |
| Unlisted trusts | 99,214 | 12.60% |
| Non-residential real property | 82,931 | 10.54% |
| Limited recourse borrowing arrangements | 59,366 | 7.54% |
| Listed trusts | 45,749 | 5.81% |
| Residential real property | 44,076 | 5.60% |
| Other managed investments | 39,539 | 5.02% |
| Other assets | 19,954 | 2.54% |
| Debt securities | 10,811 | 1.37% |
| Overseas shares | 9,132 | 1.16% |
| Unlisted shares | 8,835 | 1.12% |
| Loans | 5,562 | 0.71% |
| Other overseas assets | 2,641 | 0.34% |
| Overseas managed investments | 1,343 | 0.17% |
| Collectables and personal use assets | 391 | 0.05% |
| Overseas residential real property | 358 | 0.05% |
| Cryptocurrency | 174 | 0.02% |
| Overseas non-residential real property | 146 | 0.02% |
| Insurance policy | 68 | 0.01% |
| Total Australian and overseas assets | 787,123 | 100% |
| Borrowings | 26,723 | 3.4% |
| Other Liabilities | 6,387 | 0.81% |
| Total net Australian and overseas assets | 754,013 | 95.79% |
Source: ATO March 2021
Listed shares are the most popular asset class, with 26.35% of all SMSF assets in this asset class. That is followed closely by cash and term deposits at 18.98%, unlisted trusts at 12.6% and non-residential real property at 10.54%.
How does asset allocation vary depending on accumulation or retirement phase?
To provide a more up-to-date picture, SMSF administrator BGL analysed the asset distribution for the 2020 financial year of 99,252 SMSFs it has on its books. Of those SMSFs, 52,597 or 42.2% are in accumulation mode, 19,572 or 15.7% are in full pension mode, with the remainder a mix of the two.
The following graph shows the asset class breakdown of SMSFs in accumulation phase, retirement phase and funds in both phases.
2020 tax return asset distributions by percentage
Source: BGL 2020 annual tax return data as at 16/6/2021
When comparing the asset allocation choices of SMSFs in the different phases, the biggest difference is the allocation to listed equities. This is much higher for SMSF trustees in pension phase – at 37.9% – compared to those in accumulation phase at 18.7%. Funds with members in both phases have a relatively high allocation to listed shares as well, at 31.7%.
There isn’t too much difference between the asset allocations of all phases when it comes to cash and term deposits. Allocations by SMSFs in full pension mode are slightly higher at 25.2%.
Unsurprisingly, SMSFs in retirement phase have smaller allocations to illiquid assets, such as residential real property – 3.2% compared to 6.6% for accumulation phase. And there is a stark difference when it comes to limited recourse borrowing arrangements used to invest in real property, where SMSFs in accumulation phase have an allocation of 17.8%, compared to just 0.2% for funds in retirement phase.
As their members get older, and their minimum pension payments larger as a percentage of assets, SMSFs in retirement phase need sufficient liquid assets to meet these payments. There is also a tendency to seek out assets that pay higher yields, hence the popularity of listed shares with high dividend yields and franking credits.
How does SMSF balance relate to asset allocation choice?
The ATO also breaks down asset allocation based on SMSF balance size, which can also impact the asset allocation of an SMSF.
As the tables below highlight, the lower the balance of an SMSF, the higher the allocation to cash and term deposits. Funds with balances under $200,000 all have more than 40% in cash and term deposits.
When SMSF balances start to approach the $500,000 mark, their allocation to cash and term deposits reduces. But smaller funds still have a reasonable allocation to listed shares of between 22.4% and 22.7% for SMSFs with balances up to $500,000.
Interestingly, lower balance SMSFs have some of the highest allocations to cryptocurrencies, with funds under $50,000 having the highest percentage allocation to this asset class at 1.2%. This could reflect the greater acceptance of cryptocurrencies among younger people who have not yet had time to build their account balance.
| Asset type | $1 to $50k | $50k to $100k | $100k to $200k | $200k to $500k | $500k to $1m | $1m to $2m |
|---|---|---|---|---|---|---|
| Listed trusts | 1.4% | 2.4% | 4.1% | 5.2% | 6.1% | 6.6% |
| Unlisted trusts | 2.2% | 5.0% | 7.0% | 7.0% | 7.9% | 9.9% |
| Insurance policy | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% |
| Other managed investments | 1.1% | 2.5% | 3.0% | 3.8% | 4.6% | 5.6% |
| Cash and term deposits | 52.6% | 45.4% | 42.3% | 28.9% | 23.6% | 22.9% |
| Debt securities | 0.2% | 0.2% | 0.4% | 0.6% | 1.0% | 1.4% |
| Loans | 1.5% | 2.8% | 2.1% | 0.8% | 0.5% | 0.5% |
| Listed shares | 22.4% | 22.6% | 22.7% | 22.7% | 25.1% | 29.0% |
| Unlisted shares | 2.3% | 2.5% | 2.1% | 1.0% | 0.7% | 0.6% |
| Limited recourse borrowing arrangements | <0.1% | 0.2% | 1.1% | 14.5% | 14.2% | 5.9% |
| Non-residential real property | 0.8% | 1.7% | 2.9% | 5.2% | 6.3% | 8.1% |
| Residential real property | 1.0% | 2.2% | 3.3% | 5.7% | 6.3% | 5.7% |
| Collectables and personal use assets | 0.5% | 0.5% | 0.4% | 0.1% | 0.1% | <0.1% |
| Other assets | 11.3% | 8.9% | 6.3% | 3.2% | 2.4% | 2.5% |
| Cryptocurrency | 1.2% | 1.1% | 0.5% | 0.1% | <0.1% | <0.1% |
| Overseas shares | 0.8% | 1.0% | 0.9% | 0.7% | 0.7% | 0.8% |
| Overseas non-residential real property | <0.1% | 0.1% | 0.1% | <0.1% | <0.1% | <0.1% |
| Overseas residential real property | 0.2% | 0.4% | 0.4% | 0.1% | 0.1% | <0.1% |
| Overseas managed investments | 0.1% | 0.1% | 0.1% | 0.1% | 0.1% | 0.1% |
| Other overseas assets | 0.3% | 0.5% | 0.5% | 0.3% | 0.2% | 0.3% |
| Total | 100% | 100% | 100% | 100% | 100% | 100% |
| Asset type | $2m to $5m | $5m to $10m | $10m to $20m | $20m to $50m | $50m + |
|---|---|---|---|---|---|
| Listed trusts | 6.1% | 5.3% | 4.6% | 3.2% | 2.0% |
| Unlisted trusts | 12.0% | 14.0% | 16.1% | 19.0% | 16.6% |
| Insurance policy | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% |
| Other managed investments | 5.7% | 5.6% | 5.1% | 4.4% | 2.6% |
| Cash and term deposits | 20.4% | 17.7% | 15.4% | 13.7% | 14.6% |
| Debt securities | 1.8% | 2.0% | 2.0% | 1.7% | 0.8% |
| Loans | 0.6% | 0.8% | 1.0% | 2.4% | 2.4% |
| Listed shares | 30.5% | 31.1% | 30.2% | 22.9% | 24.5% |
| Unlisted shares | 0.9% | 1.4% | 2.0% | 3.9% | 2.8% |
| Limited recourse borrowing arrangements | 3.2% | 3.1% | 3.8% | 6.5% | 10.3% |
| Non-residential real property | 10.0% | 10.5% | 10.8% | 12.1% | 15.7% |
| Residential real property | 4.7% | 3.6% | 2.9% | 1.9% | 1.1% |
| Collectables and personal use assets | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% |
| Other assets | 2.5% | 2.6% | 3.1% | 4.1% | 3.8% |
| Cryptocurrency | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% |
| Overseas shares | 1.1% | 1.6% | 2.2% | 2.5% | 2.1% |
| Overseas non-residential real property | <0.1% | <0.1% | <0.1% | 0.3% | <0.1% |
| Overseas residential real property | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% |
| Overseas managed investments | 0.2% | 0.2% | 0.3% | 0.5% | 0.2% |
| Other overseas assets | 0.3% | 0.4% | 0.6% | 0.8% | 0.4% |
| Total | 100% | 100% | 100% | 100% | 100% |
Source: ATO (2018–19)
If you’d like to learn more about the most popular ETFs, Australian and international shares, managed funds and alternative investments, see the following SuperGuide articles:
