SMSF trustees still playing it safe with equities, but for how long?

An analysis of CMC Markets Stockbroking’s self-managed super fund (SMSF) clients has found that, on average, Australian SMSF trustees hold only four different types of securities – and have a strong leaning towards the big bluechips that make up a significant share of the ASX 200.

The SMSF sector is the fastest growing in the superannuation industry, growing by more than 33 per cent¹ over the past five years to 500,000 funds, with an estimated $162 billion in listed shares – which means shares have now outstripped cash (at close to $138 billion) as the asset of choice for SMSF trustees.²

“With interest rates at historic lows, it’s no surprise the largest proportion of asset allocation for Australia’s SMSF sector is now listed shares,” said Andrew Rogers, Head of CMC Markets Stockbroking. “We expect to see an even greater shift from cash and term deposits to listed shares if interest rates continue to remain at current levels as many are predicting.”

Mr Rogers went on to say that various features offered by equities – in particular direct equities – also offered appeal for SMSF investors, including tax effectiveness and the ability to offer both capital growth and an income stream via dividend payments.

“Direct shares allow the trustee complete control and transparency over the portfolio along with flexibility in terms of buying and selling at the time of the trustee’s choosing – not at the time it suits a super fund, for example. This gives trustees the ability to pursue ethical or other investing agendas and to adjust and rebalance the investment portfolio in line with their own bespoke model to achieve the outcomes they want,” said Mr Rogers.

According to Mr Rogers, the big question is, with the big banks, energy and materials stocks already priced high, will SMSF trustees venture into other sectors or seek to increase the number of companies represented in their portfolios?

“If this does occur, the potential volumes we’re talking about may have a material effect on pricing and the weightings of the ASX 200 benchmark. So it’s a space we’re watching with great interest.”

To help track and measure SMSF participation in the sharemarket, CMC Markets Stockbroking has developed an infographic that provides an at-a-glance breakdown of its key features, including the top shareholdings by state.

“Our analysis found that SMSFs on the eastern seaboard showed a particular preference for financial and bank stocks whilst SMSFs in WA were more likely to hold energy and material stocks. Queenslanders were heavier in stocks across Foods and Staples such as Woolworths (WOW) and Wesfarmers (WES),” said Mr Rogers.

“So while there are geographical variations, it seems that a penchant for the big name stocks is the constant. Over the next year or so we will be keeping a close eye on where the SMSF dollars are going, so we can anticipate trends and also look at adding more features to our trading platforms to add value to our SMSF clients,” he said.

CMC Markets has recently added new features to its platform specifically for SMSF clients, including a partnership with SMSF software developer Class Super. This partnership will streamline the process of transferring client data to accountants and advisers in real time, reducing the administrative burden on clients so they can spend more time focussed on their investments.

Key findings from CMC’s SMSF analysis

While the SMSF sector in Australia is rapidly growing, CMC Markets Stockbroking’s data indicates that the uptake has been greater in certain states. Almost half (46%) of CMC Markets Stockbroking’s SMSF clients are based in NSW, while 23% reside in Queensland, 17% are in Victoria, 5% can be found equally in WA ,South Australia and the Northern Territory, 3% in SA and just 1% in Tasmania. This dominance of NSW is reflective of the ATO data which also shows a strong presence of SMSFs in the eastern states of Australia.

To download the infographic please click here.

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¹ Australian Taxation Office Self-managed super funds: A statistical overview 2010-11

² Australian Taxation Office Self-managed super fund statistical report March 2013