SMSFs have led the way in recognising the effectiveness of using exchange-traded funds (ETF) to diversify their portfolios and have embraced them more actively than advisers, an ETF executive said today.
Blackrock Australia head of iShares Jon Howie told an Australian Securities Exchange ETF roundtable in Sydney today that 25 per cent to 30 per cent of SMSFs consult a financial adviser to assist them with portfolio construction as most fund members are independent-minded investors who construct their own portfolios.
“SMSFs actually were leaders in the industry in Australia in recognising that using these ETF vehicles was a better way to do it than they might have otherwise done,” Howie said.
He added that as the advice industry evolves in the next couple of years, the proportion of independent-minded SMSF investors will only grow.
Vanguard Australia head of corporate affairs Robin Bowerman said lack of diversification in SMSF portfolios remains an issue despite recent Investment Trends data showing an upward trend in allocation to international equities.
“But there’s a big chunk of money still sitting in Aussie equities and that’s partly driven by tax reasons. The imputation credits are a powerful reason why SMSFs use Australian equities,” Bowerman said.
He noted Labor’s proposal to abolish cash refunds for excess imputation credits, but said it was too early to draw conclusions on what impact this would have on portfolio construction.
However, he said regardless of whether the proposal becomes law, he still expects the trend of greater diversification offshore to continue.
“Australia is only 3 per cent of the global share market, so some level of home-country bias makes absolute sense, but if you’re looking at it on a market-cap basis, then Australian investors need to be a little bit more diversified globally,” he said.
He also noted criticism is lingering around the idea of ETFs and passive investing as one amorphous mass, where everyone is investing in just the market-cap structure.
“In reality some people are using smart-beta-type approaches, some people are using active, some people are using traditional market-cap weighted,” he said.
“But there’s a whole spectrum of people making active decisions and the ETFs are simply the tool they’re using to implement their portfolio.”
