Managing risk and diversification drive rise in ETF and managed fund investment
There has been a 24 per cent increase in the number of SMSFs using managed funds, according to the latest Vanguard/Investment Trends SMSF Report.
The report found that 255,000 SMSFs – 42 per cent of the total SMSF population of around 606,000 funds – are now using managed funds in their portfolio, representing a 24 per cent increase from 2022.
However, it also found that the proportion of SMSF assets invested in managed funds remains unchanged at nine per cent on a dollar-weighted basis.
Additionally, the report revealed that around 34 per cent of all SMSFs – around 205,000 – have included ETFs in their portfolio which represents a 32 per cent increase from the 2022 figure in which only 155,000 SMSFs had ETFs as part of their investment plans.
Once again, however, the proportion of SMSF assets invested in ETFs remains unchanged at five per cent on a dollar-weighted basis.
The reason for the growth in managed funds and ETFs has been linked to the desire for SMSFs to diversify their portfolios with 50 per cent of those surveyed citing this as the reason for looking to managed funds as an option and 70 per cent stating the same reason for their uptake of ETFs.
As well, many self-managed funds said these types of investments save them time on trying to choose stocks, with 45 per cent of SMSF investors who took up managed funds and 50 per cent of those who chose ETFs citing this as a contributing factor to their decisions.
Around 42 per cent of SMSFs said managed funds also offered them some protection against the risk of individual stock exposure while gaining exposure to specific overseas markets was cited by 52 per cent of SMSF investors using ETFs.
Other reasons nominated by SMSF investors for using managed funds were exposure to active management (40 per cent), access to specific sectors (36 per cent), and access to specific types of investments/asset classes (32 per cent).
For SMSF investors using ETFs, other factors nominated were liquidity/easy to buy and sell (48 per cent), access to specific types of investments/asset classes (45 per cent), and to provide a good portfolio core (39 per cent).
Investing in international shares was of most interest to SMSF investors using managed funds (41 per cent), followed by Australian mid and small-cap shares (35 per cent), and Australian large cap shares (33 per cent).
Other asset allocations of interest were Australian property (15 per cent), infrastructure (12 per cent), and Australian fixed income (11 per cent).
For SMSF investors using ETFs, the areas of most interest were international shares (73 per cent or respondents), Australian shares (63 per cent), thematic investments (19 per cent), Australian fixed income (16 per cent), Australian property (15 per cent), and infrastructure (14 per cent).
The proportion of SMSF investors that made substantial changes (more than 10 per cent) to their asset allocation has remained consistent with the historical average at 36 per cent (in 2020 and 2021 this figure rose to about 45 per cent).
Looking at the year ahead, SMSF investors say the main objective that will drive their investment selection includes balance between growth and risk (28 per cent), capital growth focus (27 per cent) and income focus (27 per cent).
