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Trustees still need ETF guidance

Despite the popularity of exchange-traded funds (ETF) in the SMSF sector, trustees continue to require education and guidance on the use of these investment instruments, a technical expert has said.

Speaking at the S&P Dow Jones Indices Annual Australian ETF Masterclass in Sydney today, SMSF Association head of technical Peter Hogan said: “Certainly in the SMSF area unless [the trustee] happens to have a financial planner providing them with investment advice they are again unlikely, or less likely, to invest directly in ETFs.

“[This is] simply because they don’t understand them.”

Hogan said one of the reasons SMSFs used ETFs was for global market exposure and suggested the statistics presented regarding these allocations were perhaps understated.

“[Use of EFTs] for international shares, and these are ATO statistics so again not highly accurate, is less than 1 per cent. But that exposure through ETFs and managed funds is probably higher; around 5 or 6 per cent estimated,” he noted.

“But it still can be significantly higher. When you think of the portfolios that are put together for other types of investors, where maybe 30 per cent of the portfolio is confined to international shares, SMSFs still lag a long way behind.”

Having made this point, Hogan emphasised international equities was not the only asset class applicable to SMSFs when it came to ETFs.

“[The SMSF ETF opportunity] is not just Australian shares, is not just international shares; it’s bond markets, it’s fixed interest markets as well that ETFs provide exposure to,” he said.

“I think that’s the message that needs to get across to SMSF trustees who are looking for alternatives clearly in the fixed interest market to term deposits and cash, but are struggling to find anything that looks attractive.”

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