The take-up of exchange-traded funds (ETF) by SMSFs will rise strongly over the coming years as the number of trustees currently invested in the products was comparatively low against the 520,000-plus funds in existence.
BetaShares chief economist David Bassanese said for the growing band of Australians using SMSFs, ETFs were becoming more viable as they were affordable, relatively easy to understand and accessible through the Australian Securities Exchange.
“There are roughly 100,000 investors that invest in ETFs, of which just under 50 per cent are SMSFs – there’s about 46,000 according to our numbers,” Bassanese told selfmanagedsuper.
“While that seems like a lot, it’s still only 10 per cent of total SMSFs in the country.
“So 90 per cent of SMSFs are still not using ETFs. They are a great product, but are still relatively underused by SMSFs.”
In addition, the range of ETFs available to Australian investors was no longer restricted to passive-style index funds, he said.
“The early products in this market were like traditional index funds that track benchmark equity indices, but there’s been a lot of innovation in recent years and there’s a lot of products that can be particularly tailored to the risk and return preferences of those with SMSFs,” he said.
“For example, if you’re in the early stages of accumulating wealth, therefore are more risk-seeking and still have a while until retirement, you can consider a geared fund.
“At the other end of the spectrum, as you get closer to retirement and seek income, there are a range of ETFs that focus on stocks with high dividend yields.”
While the market had evolved from “plain vanilla” ETFs to more tailored investment outcomes, the development of the product range would continue to expand into other asset classes that were not yet available or appealing, he said.
“Looking out five, 10 years, I wouldn’t be surprised to see model portfolio-type ETFs where an ETF already mixes and matches different asset classes to provide a portfolio, because at the moment investors have to mix and match their own different ETFs to get an overall portfolio that suits them,” he said.
“I also think the international area will expand with a lot more offerings in terms of different niches, for example, there’s still no international fixed-income ETF, and people might say that’s probably a good thing at the moment because the returns aren’t that fantastic, but it’s still an important asset class that will probably be filled at some point.
“Also, more corporate bond-type ETFs might be developed as well.”
Last month, Bassanese presented a session on ETFs at the Self-managed Independent Superannuation Funds Association SMSF Forum.
