Exchange-traded funds (ETFs) are a relatively young investment product. Born in the 1990s, they now play a key role in many investment portfolios.
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 Fixed Interest.
New breeds of ETFs are being developed all the time. From a standing start of just two ASX-listed ETFs in 2001, there are now more than 340 ETFs available on the ASX and Cboe (formerly Chi-X) exchanges.
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 net 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.
Class data shows roughly one third of SMSFs held ETFs in June 2023, split evenly between domestic and international funds, although ETFs accounted for only 4.7% of total SMSF assets.
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 half of the 20 most popular ETFs invested in by SMSFs.
That said, Vanguard’s Australian Shares Index ETF and Australian Property Securities Index ETF continue to rule the roost, held by 12.6% and 12.5% of SMSFs respectively. While Vanguard’s Australian Shares Index ETF also tops the rankings for percentage of total SMSF investments, seven of the top 10 by this measure are international shares ETFs. This likely reflects the strong relative performance of international shares in the year to June 2023, with a return of 18.3% compared with the Australian market return of 14.4%.
As interest rates rose sharply, three cash and fixed interest ETFs edged their way into the top 20.
However, topical themes such as cybersecurity and battery technology which were popular in previous years were absent, with a clear preference for broad-based shares ETFs as sharemarkets surged in the year to June 2023.
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 | ETF name | ETF name | % of funds with ETFs that hold this security | % of total SMSF ETF investments** |
|---|---|---|---|---|
| 1 | VAS | Vanguard Australian Shares Index ETF | 12.6% | 5.5% |
| 2 | VAP | Vanguard Australian Property Securities Index ETF | 12.5% | 2.6% |
| 3 | IVV | iShares S&P 500 ETF | 11.5% | 2.8% |
| 4 | VEU | Vanguard All-World Ex-US Shares Index | 10.6% | 7.8% |
| 5 | VGS | Vanguard MSCI Index International Shares ETF | 9.7% | 1.6% |
| 6 | QUAL | Vaneck MSCI World ex-Australia Quality ETF | 9.0% | 0.4% |
| 7 | MGOC | Magellan Global Fund | 8.7% | 1.8% |
| 8 | IOO | iShares Global 100 ETF | 8.5% | 2.9% |
| 9 | VTS | Vanguard US Total Market Shares Index ETF | 8.5% | 1.8% |
| 10 | NDQ | Betashares Nasdaq 100 ETF | 7.4% | 0.6% |
| 11 | MICH | Magellan Infrastructure Fund | 7,4%% | 0.6% |
| 12 | AAA | Betashares Australian High Interest Cash ETF | 7.1% | 0.5% |
| 13 | VGAD | Vanguard MSCI Index International Shares (Hedged) | 7.0% | 0.4% |
| 14 | STW | SPDR S&P/ASX 200 Fund | 6.8% | 0.8% |
| 15 | HBRD | Betashares Active Australian Hybrids Fund | 6.5% | 0.8% |
| 16 | MVW | Vaneck Vectors Australian Equal Weight ETF | 6.32% | 0.8% |
| 17 | VHY | Vanguard Australian Shares High Yield ETF | 6.3% | 0.4% |
| 18 | A200 | Betashares Australia 200 ETF | 6.0% | 0.4% |
| 19 | IXJ | iShares Global Healthcare ETF | 6.0% | 0.3% |
| 20 | VAF | Vanguard Australian Fixed Interest Index ETF | 5.7% | 0.3% |
Source: Class. Data as of 30 June 2023
*Data sourced from 186,220 SMSFs that use Class software.
*Percentage each security makes up of the total SMSF ETF investments e.g. Vanguard’s Australian Shares Index ETF accounts for 5.5% of the total SMSF investments in ETFs.
It’s worth noting that while six companies provide the ETFs in the top 20, Vanguard has eight, followed by Betashares with 4, iShares (owned by BlackRock) with three, Vaneck and Magellan with 2 and SPDR (State Street Global Advisers) with one.
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!