ETFs (Exchange-traded funds) are a relatively young investment product, born in the 1990s, which 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 over 240 ETFs available on the ASX. SMSFs on BGL’s database hold an interest in 153 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 2020 increased slightly to 15.2%, whereas funds holding direct shares and traditional managed funds all fell slightly. ETFs are now held by almost as many SMSFs as traditional managed funds (17.4% 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. Despite the turmoil on global markets in the first half of 2020, Australian equities experienced the biggest inflows across the market according to the BetaShares Australian ETF Review – Half Year 2020.
There was also an increase in the number of SMSFs investing in the Vanguard Australian Shares High Yield ETF, reflecting the never-ending search for a decent yield in a low interest rate world.
Two other themes also emerged. Two ETFs that attracted a growing number of SMSF investors in the June 2020 quarter were the iShares Global Healthcare ETF and the Betashares Nasdaq 100 ETF. The healthcare sector came into sharper focus as the world grappled with spikes in COVID-19 cases.
Big tech stocks cemented their dominance as more people work from home during the pandemic, shop and transact online, and tune into streaming services via their TVs and 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).
The 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, although both figures are provided in the table.
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, although both figures are provided in the table.
| Rank | Security code | ETF name | % of Funds with Domestic Listed Securities that hold this security | % of total SMSF Domestic Listed Securities Investments* |
|---|---|---|---|---|
| 1 | VAS | Vanguard Australian Shares Index Etf | 16.4% | 10.4% |
| 2 | VAP | Vanguard Australian Property Securities Index Etf | 15.0% | 3.4% |
| 3 | IVV | Ishares S&p 500 Etf | 11.4% | 4.7% |
| 4 | IOO | Ishares Global 100 Etf | 10.9% | 4.1% |
| 5 | VGS | Vanguard Msci Index International Shares Etf | 9.9% | 3.8% |
| 6 | VEU | Vanguard All-world Ex-us Shares Index Etf | 9.4% | 3.0% |
| 7 | STW | Spdr S&p/asx 200 Fund | 9.2% | 5.6% |
| 8 | VHY | Vanguard Australian Shares High Yield Etf | 9.1% | 4.3% |
| 9 | VAF | Vanguard Australian Fixed Interest Index Etf | 8.5% | 3.7% |
| 10 | VTS | Vanguard Us Total Market Shares Index Etf | 8.3% | 3.5% |
| 11 | IXJ | Ishares Global Healthcare Etf | 7.0% | 1.8% |
| 12 | NDQ | Betashares Nasdaq 100 Etf | 6.8% | 1.8% |
| 13 | QUAL | Vaneck Vectors Msci World Ex Australia Quality Etf | 6.1% | 2.1% |
| 14 | MVW | Vaneck Vectors Australian Equal Weight Etf | 6.0% | 1.8% |
| 15 | VGAD | Vanguard Msci Index International Shares (hedged) Etf | 5.8% | 2.3% |
| 16 | IEM | Ishares Msci Emerging Markets Etf | 5.8% | 1.1% |
| 17 | SLF | Spdr S&p/asx 200 Listed Property Fund | 5.4% | 1.1% |
| 18 | IAF | Ishares Core Composite Bond Etf | 4.6% | 1.5% |
| 19 | IAA | Ishares Asia 50 Etf | 4.1% | 1.0% |
| 20 | DJRE | Spdr Dow Jones Global Real Estate Fund | 4.1% | 0.6% |
Source: BGL (bglcorp.com.au). Data as of 30 June 2020
**Percentage each security makes up of the total SMSF ETF investments e.g. VAS is 10.4% of the total SMSF investments in ETFs.
It’s worth noting that just five companies provide the ETFs in the top 20, and four companies (Vanguard, iShares, SPDR and BetaShares) have 18 of the top 20.
Outside the top 20, SMSFs are also diversifying into emerging trends including infrastructure, cybersecurity, gold and sustainability. Infrastructure is valued as a stable, long-term income investment. Cybersecurity is increasingly recognised as individuals, companies and governments grapple with online attacks. Gold prices surged early in 2020 as investors flocked to traditional safe haven investments, while growing numbers of investors concerned about the environment, sustainability and governance issues are backing sustainable investment options.
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!