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SMSFs targeting specific exposures

Despite the Australian exchange-traded fund (ETF) sector’s slow start to the year, SMSF investors are on the hunt for unique exposures within traditional asset classes and are also showing a preference for rules-based ETFs, according to State Street Global Advisors (SSGA).

During the first monthly SPDR Bites briefing for 2017, SSGA SPDR ETFs Asia-Pacific head of research and strategy Matthew Arnold labelled January a lacklustre month for ETF flows in Australia with $60 million in outflows across the industry.

“Looking at the categories that saw most of the action, we had money coming out of Australian equity ETFs, and money going into global equity, money market and fixed income ETFs,” Arnold said yesterday.

“These are very small numbers in the context of the ETF industry, so it’s difficult to take too much away from this except that it was a pretty lacklustre start to the year.”

Commenting on whether SMSF flows into ETFs were waning, particularly amid trustees’ growing interest in new and emerging investment structures such as peer-to-peer lending, SSGA head of SPDR ETFs Shaun Parkin told selfmanagedsuper: “The central theme that we’re finding with SMSF clients is that there’s less traditional vehicles being used at the moment and the reason is pretty clear, which is that they’re looking for some consistent income.

“In particular for last year, it was about [finding] consistency of income, however, that looks like it might be within an ETF or it might be P2P lending or something else; that’s absolutely a theme.”

Parkin said despite last month’s outflows, SMSF money was not pouring out of SSGA’s investor base.

“Most of our ETFs are used around a strategic asset allocation construct, so our SMSF clients tend to bucket them and we see consistent flows across them,” he noted.

“But what we’re starting to see is a big request for information, and this may just be on the data side, for what the distribution has done relatively to, say, the moving capital.

“So as capital markets have moved, has that distribution stayed relatively the same, which is the central tenet of the more rules-based ETFs.

“Obviously domestic equities pay good distributions and the franking credits are still very important, so I wouldn’t say there has been a big move away from ETFs by our SMSF client base, but more that they’re targeting specific types of exposures and preferring rules-based ETFs in particular.”

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