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Exchange-traded funds (ETFs) are a relatively young investment product. Born in the 1990s, they have quickly become popular with investors. As the name suggests, ETFs can be bought and sold on the ASX like ordinary shares but offer the diversification of managed funds.
Each ETF is designed to reflect the performance of a particular market – whether that’s a share index such as the ASX200 or the S&P500, a grouping of national markets such as Emerging Markets, an industry such as Healthcare or an asset class such as Global Property.
New breeds of ETFs are being developed all the time and there are now around 280 ETFs available on the ASX and Chi-X exchanges. SMSFs on BGL’s database hold an interest in 170 ETFs, an indication that they are diving deeper into ETF waters.
SMSF investors have embraced ETFs because they offer a simple, easy to trade, low-cost way to diversify, especially when it comes to global markets. Because most ETFs are passively managed – tracking an entire index rather than picking winners – fees are generally low. And, as we all know by now, low fees can boost returns.
Some large superannuation funds now offer the ability for members to invest in ETFs, but SMSFs have shown a growing appetite for the products. As well as cost and ease of trading, ETFs allow self-directed investors to plug gaps in their portfolio as well as make tactical changes to their asset allocation in response to market moves.
BGL data shows the number of SMSFs holding ETFs in June 2021 increased to 34.9%, up from 30.3% just a year earlier. ETFs are now held by more than three times as many SMSFs as traditional managed funds (10.4% of funds).
International and Domestic ETFs
As previously mentioned, ETFs provide a cost-effective way to gain exposure to overseas markets, especially developed market shares. This is reflected in the fact that international ETFs account for 12 of the 20 most popular ETFs invested in by SMSFs.
That said, Vanguard’s Australian Shares Index ETF and Australian Property Securities Index ETF remain the top two funds, followed by State Street Global Advisers’ SPDR S&P/ASX200 fund. The strong rebound in global shares in the year to June 2021 saw strong inflows into local and international share funds.
Another theme that emerged was technology. BetaShares Nasdaq 100 ETF climbed five places on the list to number 7 and showed the biggest increase in SMSF funds holding the investment, up 2.3% to 6.9% of SMSFs in the year to June 2021. The other big mover was HACK (Betashares global cybersecurity ETF), reflecting the growing awareness of cybersecurity. HACK was the only new entrant into the remarkably stable top 20.
Big tech stocks cemented their dominance as more people worked from home during the pandemic, shop and transact online, and tune into streaming services via their electronic devices. The Nasdaq 100 Index is home to the likes of Apple, Google, Amazon, Microsoft, Facebook and Chinese heavyweights Tencent (owner of the WeChat messaging and payment app) and Alibaba (the Chinese Amazon).
20 most popular ETFs invested in by SMSFs
The top 20 list below is ranked by the percentage of SMSFs holding these ETFs, rather than the percentage each security makes up of total SMSF investments in ETFs, although both figures are provided in the table.
| Rank | Security code | ETF name | % of Funds with ETFs that hold this security | % of total SMSF ETF investments* |
|---|---|---|---|---|
| 1 | VAS | Vanguard Australian Shares Index ETF | 13.1% | 15.5% |
| 2 | VAP | Vanguard Australian Property Securities Index ETF | 10.2% | 3.2% |
| 3 | STW | SPDR S&P/ASX200 Fund | 8.8% | 28.3% |
| 4 | IVV | Ishares S&P 500 ETF | 8.4% | 2.7% |
| 5 | VGS | Vanguard Msci Index International Shares ETF | 7.7% | 4.7% |
| 6 | IOO | Ishares Global 100 ETF | 7.5% | 2.0% |
| 7 | NDQ | Betashares Nasdaq 100 ETF | 6.9% | 0.8% |
| 8 | QUAL | Vaneck MSCI International Quality ETF | 6.9% | 1.8% |
| 9 | VHY | Vanguard Aust Shares High Yield ETF | 6.1% | 4.8% |
| 10 | VEU | Vanguard All-world Ex-US Shares Index ETF | 5.9% | 0.7% |
| 11 | VAF | Vanguard Australian Fixed Interest Index ETF | 5.8% | 2.0% |
| 12 | IXJ | Ishares Global Healthcare ETF | 5.6% | 0.5% |
| 13 | MVW | Vaneck Australian Equal Weight ETF | 5.6% | 1.2% |
| 14 | VTS | Vanguard US Total Market Shares Index ETF | 5.3% | 0.8% |
| 15 | VGAD | Vanguard MSCI Index International Shares (hedged) ETF | 5.0% | 1.1% |
| 16 | IEM | Ishares MSCI Emerging Markets ETF | 4.1% | 0.9% |
| 17 | HACK | Betashares Global Cybersecurity ETF | 4.0% | 0.3% |
| 18 | SLF | SPDR S&P/ASX 200 Listed Property Fund | 3.8% | 1.3% |
| 19 | IAA | Ishares Asia 50 ETF | 3.6% | 0.3% |
| 20 | IAF | Ishares Core Composite Bond ETF | 3.4% | 1.0% |
Source: BGL (bglcorp.com.au). Data as of 30 June 2021
**Percentage each security makes up of the total SMSF ETF investments e.g. Vanguard’s Australian Shares Index ETF is 15.5% of the total SMSF investments in ETFs.
It’s worth noting that just five companies provide the ETFs in the top 20. Vanguard has eight, followed by iShares (owned by BlackRock) with six. SPDR (State Street Global Advisers), Betashares and Vaneck each have two.
Outside the top 20, SMSFs are also diversifying into emerging trends including infrastructure, electric vehicles, lithium, artificial intelligence (AI) and robotics, and ethical/sustainable investments. Infrastructure is valued as a stable, long-term income investment.
This along with all the SuperGuide articles are incredibly useful thank you.
Would also be useful to see a comparison of price, fees and return for top 30 ETF and LIC, also fixed interest trusts/ bonds. Keep up the Excellent work, & thanks!