Diversification driving SMSF ETF use

Diversification is the primary reason for SMSF investors’ use of exchange-traded funds (ETF), a new study has found.

According to the latest BetaShares/Investment Trends “2016 Exchange-Traded Funds Report”, SMSFs that used ETFs typically cited a wider range of reasons for using them.

With multiple responses accepted, the survey revealed 77 per cent of SMSFs that held ETFs used the structure for diversification, followed by 59 per cent using ETFs to gain access to overseas markets and 47 per cent citing low cost.

“But we still have a challenge because only 5 per cent of SMSFs assets are invested in overseas assets and overseas shares,” Investment Trends research director Recep Peker told a media briefing in Sydney today.

“And looking at the high net worth population in Australia, again, only about 5 per cent of their portfolios are in overseas assets.

“So ETFs are viewed as a product that will give SMSFs not just access to overseas assets that they want to gain access to, but now also [specific sectors] that ETFs are enabling them to reach in a cost-effective manner.”

The report also found the number of SMSFs holding ETFs had grown in line with the increase in the number of ETF users, with 38 per cent of ETF investors holding ETFs through their SMSF.

“This highlights the continued importance of this investor class in driving industry growth,” Peker noted.

When it came to the top barriers to using ETFs among those looking to do so, the report revealed 37 per cent of respondents cited it was due to a lack of knowledge about ETFs, followed by 28 per cent who cited it was due to a lack of knowledge about how to use ETFs in a portfolio.

“The biggest challenge across the board is awareness of ETF products and what they can offer,” Peker said.

“A lot of the barriers often come down to education to be able to understand them, such as what are these products and how do I use them in my portfolio.

“The good news for ETF providers is that as they grow their education and the awareness of ETFs that will really help [break down those barriers].

“Compared to traditional managed funds, the top reasons that hold people back from using them are access, cost and also trust, whereas these three things don’t come up when you talk about ETFs.”

A further 21 per cent said the current market conditions were a key a barrier to ETF use.

The report projected a record 315,000 Australians would be invested in ETFs by September 2017.

BetaShares managing director Alex Vynokur said the Australian ETF industry was set to continue on its growth path and was following the footsteps of more mature ETF markets around the world.

“One of the most dynamic investment vehicles available, we are confident that investors will continue to tap into ETFs for a broader range of investment needs,” Vynokur said.

“In line with the growth we are currently seeing, BetaShares projects the industry will hit $30 billion to $33 billion in funds under management, with approximately 250 exchange-traded products by the end of 2017.”

The report was based on two detailed surveys of 1400 ETF investors and 592 financial planners.

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