Why popularity of ETFs is surging among SMSFs

 

Fundamental principles for long-term wealth creation are spearheading the surging popularity of Exchange Traded Funds (ETFs) among self-managed super funds.

 

The 2015 Self Managed Super Fund Report - published over the past week by Vanguard and specialist researcher Investment Trends -reports that the number of SMSFs holding ETFs rose by 53 per cent over the 12 months to April.

And the three biggest reasons given by SMSFs for their decision to invest in ETFs are to further diversify their portfolios (more than 70 per cent of funds), to access overseas markets and to invest at a low cost.

Appropriately diversifying a portfolio within an investor's long-term, strategic or target asset allocation and keeping investment costs to a minimum are among the most critical principles for seeking sustained investment success. (You may be interested to read more on this in Vanguard's principles for investing success.)

Other key findings in the 2015 Self Managed Super Fund Report relating to ETFs include:

  • SMSFs make up 43 per cent of Australia's 191,000 investors in ETFs. Although SMSFs were among the first investors to embrace ETFs in Australia, their popularity is also rapidly growing among non-SMSF investors.
  • 56,500 SMSFs intend to make their first ETF investments over the next 12 months.

During the research for the 2015 Self Managed Super Fund Report, SMSF trustees were asked: "What are hardest aspects of running your SMSF?"

The largest percentage of respondents to this question, 32 per cent, name "choosing what to invest in" as by far their biggest challenge in managing their SMSF - markedly up from 12 months earlier.

It is clear that numerous SMSF trustees are turning to ETFs as an answer to the investment challenge of what to invest in and how to diversify. Often this would involve SMSFs adopting a core-satellite strategy.

Under the core-satellite approach, investors hold the core of their portfolios in a diversified range of ETFs and/or traditional index funds and then with much-smaller satellites of favoured actively-managed funds and directly-held shares.

Further, the 2015 Self Managed Super Fund Report highlights once again that SMSFs continue to hold a large portion of their assets in a relatively small number of direct shares and in "excess cash". (Excess cash is defined as cash that would usually be invested elsewhere when investors recognise an opportunities. This cash tends to build up during times of increased market volatility.)

SMSFs hold an average of 18 different direct shares in their portfolios with 52 per cent being bank/financial and resource stocks. It is crucial that SMSF trustees recognise the degree of risk being carried in such portfolios.

Again, ETFs and other managed funds are providing a means for SMSFs with a high exposure to relatively few direct shares and to excess cash to efficiently and easily diversify to spread their risks and opportunities.

* The 2015 Self Managed Super Fund Report is based on a survey of almost 4000 SMSF trustees and 500 financial advisers.

 

By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
24 July 2015

 

Any advice contained in this website is of a general nature only and does not take into account your circumstances or needs. You must decide if this information is suitable to your personal situation or seek advice.

Rolanda has been my financial adviser for 20 years. I have always found her to be highly intelligent, knowledgeable and professional in her career. Rolanda is accessible at all times and patiently explains terms that I do not fully understand. I can highly recommend Rolanda and it is a pleasure to do so. I do this with the utmost confidence. Marcia Montgomery (Retiree – home duties and ex-clerk with Water Board)
I retired Oct 2012, and seeking Financial Advice for my retirement funds, I decided to have Rolanda look after my financial affairs, and so happy I did. Since my retirement I am extremely comfortable with Rolanda’s advice, experience and strategies and the returns on my investments. Rolanda is my "Breath of Fresh Air" at this stage of my life and she makes herself available 24/7 should you need to talk with her. Steve Hoad (Ground Engineer, Qantas)
In 1997 I left Energy Australia and decided to join Rolanda Adams Financial Services for the financial support and advice that I would need into the future. That decision has proved a very good one and I am still with Rolanda who has given me advice and friendship over those many years. The advice given has ensured that my investments have been protected and the major losses, of some, during the GFC was not felt by me unduly. Rolanda and her team are very easy to contact at any time and one is always received in a most professional manner. I would be most happy to recommend Rolanda Adams Financial Services to all who need financial services. Graham Fleeton (Manager, Property Insurance Group Energy Australia (Ausgrid))
Rolanda has been my Adviser for the past 18 years. Through her wide industry experience and professional expertise she has ensured the sound development and ongoing management of my investments. Her advice has invariably been sound, timely and entirely tuned to meet my personal needs in retirement. She has a friendly, engaging manner and is always readily available to address any of my concerns. I have no hesitation in recommending her. Neil O'Keeffe (Chief Inspector (retired), Australian Customs Service)

© 2019 Rolanda Adams Financial Services Pty Ltd. All rights reserved. Site by PlannerWeb.