SMSF ETF use grows exponentially

The percentage of SMSFs using exchange-traded funds (ETF) has more than doubled over the past five years, while total assets invested in ETFs by SMSFs have quadrupled, according to a new Class report.

The “March 2018 SMSF Benchmark Report” revealed exponential growth of SMSFs using ETFs, with SMSFs holding more than half of all ETF assets.

Total assets invested in ETFs by SMSFs increased from $4.2 billion to $19.6 billion over the five years to March 2018, while the percentage of SMSFs using ETFs more than doubled from 7.9 per cent to 18.9 per cent.

Investment in ETFs as a percentage of all SMSF assets tripled from 0.8 per cent to 2.5 per cent.

One-third of ETF investors are SMSFs and this investment equated to over 50 per cent of total ETF asset value.

The report said the key drivers for ETF investment for SMSF investors are diversification, cost-effectiveness and access to international equities.

Class chief executive Kevin Bungard said: “The continued growth of ETF investment by SMSFs indicates that investors are increasingly aware of the importance of diversification.

“The investment opportunities delivered by ETFs provide SMSFs with exposure to a broader mix of assets than were previously available, allowing them to expand their investment horizons.”

SMSFs mostly use ETFs to get exposure to developed-market equities and as a passive investment in Australian shares.

International ETFs comprise 54 per cent of the top 20 ETF investment holdings.

In terms of SMSF asset allocation, 27.8 per cent is allocated to listed shares, while 21.3 per cent is allocated to cash and term deposits. The majority (99 per cent) of SMSFs hold cash and term deposits, while 19 per cent hold ETFs.

In domestic listed securities, SMSFs are highly concentrated in the largest 20 domestic shares, especially the banks, with the latter comprising 48 per cent of the top 20 investment holdings.

The domestic listed securities asset class comprises 78.3 per cent in shares and 6.8 per cent in ETFs.

The report was compiled using de-identified data extracted from across the Class Super user base.

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