Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn


Reading between the lines of falling SMSF establishments

Nicki Bourlioufas  |  31 Jul 2018Text size  Decrease  Increase  |  
Email to Friend

Page 1 of 1

SMSFs now account for around 27 per cent of Australia’s $2.6 trillion superannuation pool, down from 30 per cent three years ago. 

Just 5,243 SMSFs were established in the March 2018 quarter, down from 6,213 in December – the lowest level for several years, according to ATO data.

"We are seeing a progressive slowdown in the amount of establishments occurring, which is a good thing," says James Ridley, financial planner, Atlas Wealth Management.

In March 2018, an Industry Super Australia report on SMSFs revealed members with balances below $2 million were on average worse off than members of APRA-regulated funds.

"I think there is a greater level of education out there about minimum balances, adequate diversification, SMSF structures and ongoing costs. I believe this is why we have seen a slowdown in SMSF establishments," says Ridley.

Direct assets trend down...

Self-managed superannuation fund assets fell to $712 billion in the March quarter of 2018, along with a drop in Australian share holdings, ATO data reveals.

Total assets declined from more than $720 billion in December 2017, while Australian share holdings slid to $207.8 billion from $216.6 billion.

Though SMSFs are still overwhelmingly biased to local assets, they are using managed funds to access offshore shares, especially those in the technology sector.

smsf asset allocation

Reflecting an obsession with cash, SMSFs boosted their cash and term deposit holdings to a record $156.9 billion, up from $156.3 billion, according to the Australian Taxation Office data. Cash now represents 22 per cent of all SMSF assets.

Australian shares accounted for about 29 per cent of total assets, with SMSF assets highly concentrated in the largest 20 companies, especially the banks. The latter make up 48 per cent of the top 20 share holdings, according to the Class March 2018 SMSF Benchmark Report.

In contrast, SMSFs held just $4.8 billion directly in offshore shares, or less than 1 per cent of total assets, down from $5.0 billion in the December 2017 quarter, and barely up from $4.7 billion a year earlier, according to the ATO data.

...but handle ATO data with caution

However, the ATO data may understate SMSF offshore share investments. Many SMSF hold international assets via unlisted Australian trusts including managed funds which accounted for around 11 per cent of total assets or $76.6 billion. Offshore investments are also held via listed trusts including ETFs which accounted for $33.1 billion or 5 per cent of total SMSF assets.

According to the Class March 2018 SMSF Benchmark Report, SMSFs held around 6 per cent of total assets in international listed securities: "SMSFs are using managed funds to get much of their international asset exposure rather than investing directly".

The top five most popular managed funds were Magellan Global Fund (MGE), Platinum International Fund (4505), Platinum Asia Fund (9894), Winton Global Alpha Fund (15811) and Fidelity Australian Equities Fund (12292).

Technology stocks are most popular with SMSFs, making up 59 per cent of the top 20 direct investments in international shares, led by the familiar names of Google-owner Alphabet, Facebook, Microsoft and Amazon.

Atlas Wealth's Ridley says he has seen some SMSFs invest directly in US shares to get access to the likes of Berkshire Hathaway, Facebook, Amazon and Tesla. "Surprisingly, we don’t see a lot of them investing offshore though, as they prefer to diversify in asset classifications which they understand a bit better."

Ed Blight, asset allocation specialist at Crestone Wealth Management, says high-net-worth individuals are slightly more inclined to invest offshore. "Their focus tends towards total return rather than income. They see the opportunity to improve total returns over time by investing offshore and in alternatives.

"A recent examination of our asset base suggests that clients have: increased offshore equity positions; increased alternatives and reduced Australian equities," says Blight.

That’s for good reason, says Blight: "Australia’s earnings expectations are half other developed markets". He refers to UBS research that shows consensus earnings per share growth for Australia is 4.2 per cent for calendar year 2019".

This is around half the pace of earnings expected in other key markets, such as the US (9.9 per cent), Europe (8.2 per cent) and Asia ex-Japan (11.1 per cent).

Looking at 12-month forward price-earnings ratios, at 15.7 times, Blight says Australia is slightly more expensive than the world (15.4), while Europe (13.8) is more attractive than the US (16.1).

He also warns that the big banks are dragging down the local market’s performance, with the sector facing a potential secular downshift in future growth. Structural credit tightening is occurring here, in the wake of Australia’s Royal Commission into the financial services sector.


More from Morningstar

• Uber could be worth $110bn at IPO

• Pharma stock looks attractive after latest acquisition

Make better investment decisions with Morningstar Premium | Free 4-week trial


Nicki Bourlioufas is a contributor for Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

Email To Friend