ETFs, Investments

Diversification an SMSF priority

Diversification an SMSF priority

SMSF investors are showing some urgency in relation to SMSF portfolio diversification and allocations, a report has shown.

The latest research into SMSF trading trends has revealed portfolio diversification to be of significant importance to trustees, while some allocations to global markets have diminished potentially due to trade tension between the United States and China.

The “CommSec Trading Trends Report” showed SMSF trustees are looking to achieve greater portfolio diversification mainly through exchange-traded funds (ETF) and listed investment companies (LIC).

The analysis reflects SMSFs were net buyers of both investment instruments in the 2019 financial year, with trustees accounting for 58 per cent of the traded value of ETFs and 52 per cent of the traded value for LICs.

The CommSec report also showed SMSFs’ preference to use ETFs to secure long-term sustainable yields, with offerings such as Vanguard’s Australian Fixed Income ETF, Australian Government Bond Index ETF and Australian Share High Yield ETF popular with the cohort.

According to the report, the use of global ETFs continued to be strong, with international funds representing 48.8 per cent of the ETF trade value in the first half of 2019. This was consistent with the same period last year, when these types of transactions made up 48.9 per cent of ETF trade value.

Contrary to this ETF trend, the report showed growth in direct international trades fell among SMSF investors, with the first half of 2019 experiencing a 13 per cent fall in total trade value from this group.

Trustees gravitated toward the US for their international equity trades, with stocks such as Apple, Tesla, Amazon and Google among the top 20 overseas shares measured by traded value.

On the other hand, Asian-based shares such as Tencent, Taiwan Semiconductor Manufacturing and Ali Baba slipped out of the top 20 shares measured by traded value, having previously been included in that category.

“This may be due to nervousness around ongoing US-China trade tensions, as well as the US government’s recent blacklisting of a number of Chinese technology companies due to national security concerns,” the report said.

With regard to domestic equities, uncertainty in the lead-up to the May federal election affected SMSF investor sentiment with evidence of portfolio repositioning taking place.

The data revealed the first half of 2019 witnessed a 15 per cent increase in the total value of SMSF trades, with the selling of shares being slightly dominant.

The top 20 share holdings by value did, however, remain steady, with the banks and BHP dominant.

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