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Income, tax will remain biggest ETF plays

SMSFs will continue to use exchange-traded funds (ETF) to fulfil income needs and achieve better tax advantages in 2016, according to an ETF executive.

“We still see a lot of interest when we just look at SMSFs in terms of income strategies,” State Street Global Advisors Australia head of SPDR ETFs Amanda Skelly told selfmanagedsuper.

“Any of our product range that had an income flavour was of interest to SMSFs last year.

“The global income strategy that we have, in particular, probably did the best out of our suite in terms of investor interest.”

SMSF trustees had recognised they were under-diversified when it came to international equity exposure, Skelly added.

“It has really been the area where they’re looking to branch out outside of Australian equities,” she said.

“This is a generalisation and it’s not all SMSFs, but still that’s encouraging because rather than having just cash, property and Australian equities, international equities seem to be the next area they’re looking to include.”

In addition, SMSFs were searching for ETF strategies that could form part of a tax-efficient portfolio, she said.

“Tax is often an area that SMSFs are more concerned about,” she said.

“We’re trying to do more in this space and how to fit different strategies in a portfolio, and a lot of them might be newer to portfolio construction, so that’s an area that’s evolving.”

She also mentioned that with the Australian dollar equal to around US$0.70 currently, investors should also consider currency as an important factor in their global investments.

“If the Australian dollar strengthens, that will have a negative impact on a global equity portfolio so it’s something that investors need to be aware of going into the year ahead if they are looking at global equity exposure,” she said.

“The good thing is that there are a range of currency-hedged ETFs they can look at, but again it’s something they need to do their homework on.

“[Whether SMSFs use currency plays] depends on their time frame – if it’s a longer-term investment, currency is probably less of a concern.

“But generally trustees do their homework and that’s reflected in the 130 per cent year-on-year increase on our website traffic, which tells us that people are going out there and doing the research.”

In October 2015, the ETF industry surpassed $20 billion in assets under management.

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