SMSFs behind rapid ETF growth: research

A recent Vanguard and Tria Investment Partners analysis on exchange-traded funds (ETF) has revealed the significant 44 per cent growth in the Australian ETF market over a two-year period from 2013 was largely driven by advised SMSFs and advised retail investors.

The research, based on share registry data to the end of 2015, found advised SMSFs increased their ETF holdings by 205 per cent to $2.6 billion over two years, while advised retail investors increased their ETF holdings by 91 per cent to $6.1 billion.

Collectively, advised SMSFs and advised retail investors accounted for nearly half of the $18.2 billion in ETF funds under management by the end of last year.

“We have seen both advised and non-advised SMSF investors continue to drive growth in ETFs,” Vanguard Australia head of ETF capital markets Damien Sherman told selfmanagedsuper.

“This can be attributed in part to the fact that the attributes of an ETF, such as the ability to simply control a portfolio’s asset allocation at low cost, clearly align with self-directed investors’ specific needs.

“While the continuing adoption of ETFs by SMSFs suggests increased diversification in their portfolios, we believe there is still a great deal of opportunity for trustees to include asset classes, such as fixed income, that still seem to be under-represented in SMSF portfolios.

“Looking solely at the ETF component of SMSF portfolios we still see a home-country bias, with domestic equities making up the majority of their exposure – 51 per cent for advised SMSFs and 41 per cent for direct SMSF investors.”

The research also showed advised SMSFs continued to have a home bias, with Australian share ETFs making up 51 per cent of their ETF holdings by the end of 2015.

For listed property, levels were similar across different investor types, with unadvised SMSFs holding the biggest allocation at 8 per cent of ETF holdings.

Sherman said the next frontier he believed ETFs would help investors navigate was global fixed income.

“This asset class has only recently become available through ETFs to Australian investors and it will no doubt form a key plank of many portfolios in coming years, particularly for those looking for reliable income but are concerned about being overweight in Australian bonds,” he said.

The research tracked ETF use among five investor categories: advised retail investors, unadvised retail investors, advised SMSFs, unadvised SMSFs and institutional investors.

Vanguard offers 16 ETFs in Australia covering all key asset classes.

In 2015, it launched four ETFs in global fixed income, and European and Asian (ex-Japanese) equities.

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