Tim Steele

Leading cloud-based accounting and SMSF administration software provider Class today announced updated figures from its Benchmark Report revealing Generation X (51.9%) and Millennials (33.6%) collectively drove more than 85% of new fund establishments for the six months to 31 December 2024, as total value of net assets administered on Class grew by 9.2% to $355.9 Billion across 184,830 SMSFs and 345,570 members.^[1]

SMSFs now comprise more than one trillion (25.1%) of the $4.08 trillion superannuation industry.^[2]

Speaking at the SMSF Association National Conference in Melbourne, Class CEO Tim Steele said: “We undertook an analysis of data from Class SMSFs for the first half of FY25 which pleasingly shows the sector continues to grow and maintain its resilience. Interestingly, we’ve seen a spike in Millennial establishments which grew at a faster rate than any other demographic, increasing by 5% over the past six months to 33.6% (up from 28.5% as of 30 June 2024).

In contrast, Generation X saw a slight decline from 52.6% to 51.9%, while Baby Boomers experienced a sharper drop from 17.5% to 13.4%.^[3]

Jon Howie, Chief Executive Officer of Stake, an investment SMSF administration platform said: “As more Millennials become engaged in investing and increase their financial knowledge, we see demand for SMSFs continuing to grow within this demographic. In addition, continued innovation means the costs and complexity of SMSFs are being reduced, enabling new generations to take charge of their super.”

Growth opportunities for advice

Mr Steele said: “Data from the Class Benchmark Report has indicated that 70% of SMSFs are unadvised as the gap between supply and demand for financial advice continues to grow. We also know the number of trustees accessing financial advice has stayed relatively stable over the past three years.^[4]

“So, while accessing advice remains a challenge, increasing productivity for financial professionals through delivering innovative technology solutions presents a significant opportunity for the sector.”^[5]

For the 2022-2023 financial year, research commissioned by the SMSF Association into SMSF sector performance shows advised SMSF trustees tend to outperform non-advised funds by 7.6% compared to 6.4% (median rate of return).^[6]>

SMSF Association Chief Executive Officer Peter Burgess said these results underline the importance of making advice more accessible.

“The research found financial advisers play an important role in bolstering SMSF returns and helping trustees to avoid investment mistakes.”

Class product enhancements and future releases

Class continues to drive automation and efficiency for financial professionals with recent enhancements including share registry, document feeds, property valuation and title search:

• Enhanced share registry connections – Class now provides monthly holding balances and ownership verification for over 1,600 ASX-listed securities, supported through integrations with BoardRoom, Computershare, and MUFG Pension & Market Services (formerly Link Market Services).
• New property valuation and title search capability – Class has released new integrated property title search and title certificates, and an additional residential property valuation provider.

In the coming months, Class is set to introduce further enhancements, delivering productivity and greater efficiencies for financial professionals:

• New share registry connection – Class is in the final stages of establishing a connection with Automic, and when delivered will connect with all four major share registries to provide accountants and auditors with 99% share market coverage for over 2,100 ASX-listed companies.^[7]
• New integrated commercial property valuations.

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Notes:
[1] Class Annual Benchmark Report Half Year Findings – in the six months to 31 December 2024
[2] APRA Sept Quarterly Statistics: https://www.apra.gov.au/news-and-publications/apra-releases-superannuation-statistics-for-september-2024
[3] Class Annual Benchmark Report Half Year Findings – in the six months to 31 December 2024
[4] Class Annual Benchmark Report 2024: Leading the way: SMSFs at the forefront of superannuation
[5] Ibid.
[6] University of Adelaide: Self-managed super fund performance 2022-2023, page 7
[7] Class is in the final stages of establishing a connection with Automic, subject to final approvals.

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Jonathan Howie

BlackRock is proposing, subject to investor approval, to simplify the way fourteen of our iShares ETFs are offered on the Australian Securities Exchange (ASX). The ASX offer of these fourteen U.S. domiciled iShares ETFs will be converted to new Australian domiciled iShares ETFs. The change is planned to start in July, after the Australian financial year end.

The new Australian domiciled iShares ETFs will provide a simpler tax regime to Australian investors by removing the need for investors and their advisors to complete U.S. tax filings (known as W-8BEN forms). In addition, the funds will be able to offer distribution reinvestment to clients and the overall client experience will be aligned with the rest of the iShares Australia product suite.

The proposed changes will have no impact on investment exposures and management fees. The iShares ETFs to be converted are:

• IAA – iShares Asia 50 ETF
• IEM – iShares MSCI Emerging Markets ETF
• IEU – iShares Europe ETF
• IJH – iShares S&P Mid-Cap ETF
• IJP – iShares MSCI Japan ETF
• IJR – iShares S&P Small-Cap ETF
• IKO – iShares MSCI South Korea ETF
• IOO – iShares Global 100 ETF
• ITW – iShares MSCI Taiwan ETF
• IVE – iShares MSCI EAFE ETF
• IVV – iShares S&P 500 ETF
• IXI – iShares Global Consumer Staples ETF
• IXJ – iShares Global Healthcare ETF
• IZZ – iShares China Large-Cap ETF

The iShares ETFs that will be converted have a combined Australian AUM of over $7 billion AUD as of 31 March 2018.

At the same time, we are announcing that the five remaining U.S. domiciled iShares ETFs currently offered on ASX will be de-listed. We believe some exposures are better served with our remaining range, and this change will allow BlackRock to focus on exposures which are relevant to Australian investors today.The iShares ETFs to be de-listed are:

• IRU – iShares Russell 2000 ETF
• ISG – iShares MSCI Singapore ETF
• IXP – iShares Global Telecom ETF
• IHK – iShares MSCI Hong Kong ETF
• IBK – iShares MSCI BRIC ETF

After this project completes, all iShares ETFs listed in Australia will be locally domiciled.

Jon Howie, Head of BlackRock’s iShares business in Australia, said: “Over the past few years, the Australian ETF market has developed substantially through demand from Australian investors. This has led to improved ETF liquidity and trading infrastructure from market participants, allowing ETFs on a range of international exposures to attract assets and liquidity on the ASX. This provides the right environment for a broader locally domiciled range that is more efficient for advisors and investors.

“We are investing in our business to enhance our offering and provide more efficient portfolio construction tools for Australian investors and advisors. Today’s changes will make investing in iShares, and building globally diversified portfolios, easier for Australian investors and advisors by reducing administration – investors will no longer require filing W-8BEN forms when investing in iShares.”

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Jonathan Howie

In its first review of the funds, research house Lonsec has awarded “Recommended(Index)” ratings to the iShares Edge Smart Beta Minimum Volatility exchange traded funds (ETFs).

The two ETFs are the iShares Edge MSCI Australia Minimum Volatility ETF (ASX: MVOL) and the iShares Edge MSCI World Minimum Volatility ETF (ASX: WVOL).

MVOL and WVOL seek to deliver market-like returns with less risk, across Australian and global equities. The ETFs follow indices that screen for low volatility stocks, consider the correlations between stocks and include guardrails to limit sector and country concentrations. Importantly, the indices have lost less during downturns, when broad markets have suffered but have still captured meaningful gains during market upswings.

The “Recommended(Index)” rating indicates that Lonsec considers the iShares Edge MSCI Australia Minimum Volatility ETF to “offer a sound and inexpensive exposure to a portfolio of Australian equities designed to exhibit a lower volatility in returns relative to broad based market cap weighted portfolios”.

Furthermore, Lonsec considers the iShares Edge MSCI World Minimum Volatility ETF to “represent a relatively simple means for investors to gain an exposure to the global, developed equities markets. It would be difficult for investors to replicate the holdings of the fund with similar cost and administrative efficiency.”

Jon Howie, head of iShares Australia, noted that iShares has the most comprehensive range of smart beta ETFs listed on the Australian Securities Exchange (ASX), and commented that “iShares Edge Smart Beta ETFs are designed to provide Australian investors with a low cost way to strengthen portfolios by targeting outcomes such as reducing risk or enhancing returns.”

Mr Howie also said that the rating was timely for investors where “staying invested, regardless of market movements, is an important determinant of successful investing, but volatility can be unnerving”.

iShares ETFs utilise the portfolio and risk management expertise of BlackRock, and Lonsec also said: “BlackRock’s internally developed systems
are sophisticated and highly integrated with implementation, compliance and risk management systems. These systems allow for trade aggregation, risk monitoring and efficient execution across BlackRock’s entire tradebook. Lonsec considers technology to be an important factor in establishing scale and minimising transaction costs needed for a successful passive index and /or ETF business.

“Lonsec believes the overall quality of BlackRock’s investment personnel and research effort to be very high.”

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*The Lonsec Rating (MVOL assigned October 2016 and WVOL assigned October 2016) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold BlackRock product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria.

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Jonathan Howie

Most retirees are looking for fixed income in their investment portfolio, even if they don’t realise that is what they are seeking, says Jon Howie, head of iShares Australia.

“When you ask retirees what their risk and return aims are, what they describe is usually what fixed income can offer,” he said.

“However most people don’t think about fixed income, such as bonds, when it comes to making investment choices, or if they do, they assume such investments are too hard and too expensive to access.

“Compared to other countries, Australian investors have a bias to equities and are relatively underweight in fixed income.

“For example, a recent study by the OECD* shows that Australian pension funds held just 8.8 percent of their investments in bills and bonds**, compared to 34.2 percent in the USA, 35.6 percent in Canada, 53.4 percent in Germany, or a massive 89.1 percent in the Czech Republic.

“It’s true that this asset class used to be very difficult to understand and complicated to invest in, which could be why individual investors are unlikely to consider it. It also required large outlays to access fixed income investments, requiring minimum investments of thousands and even hundreds of thousands of dollars.

“However this is no longer the case. There are now a number of options for people to invest in fixed income in a cost-effective and flexible fashion.

“Certainly in the current economic environment, holding some fixed income in a portfolio is a good basis for ensuring regular and reliable returns – something that is particularly important to retirees. So it is important that such investors reconsider fixed income in their portfolios.”

Mr Howie added that there are a number of misconceptions about bonds and how they work in a portfolio.

“Bonds and credit issued by companies rank highest in terms of repayment in the event a company becomes insolvent. They rank above hybrid securities, which in turn rank ahead of equity.

“One option that investors could consider is to use fixed income exchange traded funds (ETFs). They are low-cost and flexible, and provide good diversification, which can be tricky to achieve when investing in bonds. They provide a reliable income stream with less price volatility than other asset classes such as shares, and usually distribute income on a quarterly basis which can be useful for retirees.

“Furthermore, in comparison to cash accounts and term deposits, fixed income ETFs can offer a higher total return in an environment of falling rates, acting as a defensive part of investor’s portfolios,” Mr Howie said.

Fixed income was a key consideration in the most recent range of ETFs launched by iShares, the iShares Core. They comprises three equity ETFs and two fixed income ETFs that can be combined to provide global multi asset class exposure.

The iShares Core fixed income ETFs provide Australian exposure through the iShares Core Composite Bond ETF (IAF) and global exposure to over 3,000 investment grade corporate bonds through the recently launched iShares Core Global Corporate Bond (AUD Hedged) ETF (IHCB).

There are six iShares ETFs listed on the ASX that provide fixed income exposure. They are:

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* OECD Pension Markets in Focus, 2015.
**Australian pension funds also held 20% of investments in cash & deposits, a substantially higher proportion than in most OECD countries.

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Jonathan Howie

iShares Australia is developing three new exchange traded funds (ETF) focused on global fixed income with plans to launch by the end of the year, according to Jon Howie, head of iShares Australia.

“Already Australian investors can create reasonably diverse portfolios with ETFs but there is a glaring hole when it comes to global fixed income – which is a key component of a truly diversified portfolio,” Mr Howie says.

“Global fixed income provides exposure to many different regions, sectors, credit profiles and maturities bringing important diversifying qualities to an Australian portfolio.”

The three new ETFs will provide investors with access to a diverse range of global fixed income options, ranging from investment grade corporate fixed rate bonds, high yield corporate bonds and emerging market bonds. They will all be hedged to Australian dollars (AUD).

The iShares Global Corporate Bond ETF aims to provide investors with the performance of the index (before fees and expenses) composed of investment grade corporate fixed rate bonds issued by corporations in emerging and developed markets worldwide. It will be benchmarked against the Barclays Global Aggregate Corporate Index (AUD hedged).

The iShares Global High Yield Bond ETF aims to provide investors with the performance of an index (before fees and expenses) composed of liquid, global developed, high yield corporate bonds. It will be benchmarked against the Markit iBoxx Global Developed Markets Liquid High Yield Capped Index (AUD Hedged).

The iShares J.P. Morgan US Dollar Emerging Markets Bond ETF aims to provide investors with the performance of an index (before fees and expenses) composed of U.S. dollar denominated, emerging market bonds. It will be benchmarked against the JP Morgan EMBI Global Core Index (AUD Hedged).

“While pockets of fixed income appear expensive, there is still value in global credit, high yield and emerging markets,” Mr Howie says.

“We are always looking for ways to help our clients build better portfolios. Launching global fixed income ETFs was a logical next step given iShares extensive experience, credibility and scale across global fixed income markets.

“By listing these three global fixed income ETFs, investors will be able to construct diversified portfolios and access different credit profiles to match their portfolio requirements.”

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Mr Persky and Mr Zaika will be based in Sydney.

Mr Jon Howie, BlackRock director and head of iShares Australia, said Mr Persky and Mr Zaika bring with them an impressive depth of financial services experience, and their appointments boost the iShares Australia team’s capabilities in assisting our clients in building better portfolios.

Mr Persky has more than 10 years’ experience in portfolio analysis, consulting and business development. He joins BlackRock from MSCI New York where he was senior relationship manager hedge fund sales and MSCI index sales. Prior to leaving Australia for the US, Josh held senior roles in relationship management and as a private wealth adviser.

He will work closely with the distribution and marketing teams to engage clients – including institutions, dealer groups, researchers and financial advisers, Mr Howie said.

“He will be engaged across a broad range of investment disciplines including portfolio analysis and construction, security valuation, market structure, trading and execution,” Mr Howie said.

Mr Zaika has over 15 years’ experience in financial services, and joins BlackRock from Barclays Capital where he was a sales manager focusing on investor solutions. He has extensive local experience managing and building relationships with advisers for international and local wealth managers.

In his new role, Mr Zaika will work closely with the client business distribution teams, focusing on the adviser segment.

“Alex brings a strong understanding of global investment and capital markets, including equities, fixed income, commodities and alternatives to the role,” Mr Howie said.

“We’ve seen a rapid take-up of ETFs among financial advisers in the past three years. As adoption grows, the conversations we’re having with clients are becoming increasingly sophisticated. Alex will bring a wealth of industry and market knowledge which will further deepen our relationships with clients in the important wealth channel,” Mr Howie said.

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Asset allocation driving investment landscape for advisers investors: Blackrock.

Asset allocation is driving the investment landscape for advisers and sophisticated investors. Rather than debating which Aussie bank to own, the focus is moving to which countries should I be invested in and in what asset classes.

Continued pressure on the Australian dollar, combined with recovering Asian and European markets, give investors opportunities to gain upside through international exposure.

Jon Howie, iShares ETF specialist at BlackRock Australia, said investors who work with their advisers to diversify their international portfolios to specific countries and regions, including United States, Europe, China, and Japan, could take full advantage of the global opportunities.

He pointed out that it’s not just about improved performance. Diversification is also about reducing risk.

“United States equities funds have been good performers in 2013, particularly for Australian investors,” Mr Howie said. With the prospect of a weaker Australian dollar during 2014, it may be opportune to increase and diversify international exposure through investments in the United States, Europe, Japan and some Asian markets, where equity market performance has been strong.

Mr Howie said ETF diversification opportunities also extended to domestic equities and fixed income, something many advisers were using to full advantage for their clients.

“ETFs have experienced significant growth in Australia with Australian Stock Exchange (ASX) ETF assets sitting around $9.51bn. This equates to an annual growth rate of over 60% in the past 12 months. Total industry inflows this year have been around $1.99bn, the largest annual inflow level ever,” Mr Howie said.

“iShares have attracted just over 62% of these flows and is currently the largest Australian ETF issuer, with $3.4bn ASX-listed assets under management.

“In 2013 we have seen advisers and their clients being far more flexible and sophisticated in the ways they use ETFs. Advisers recognise the many and varied applications of ETFs in client portfolios. One of the most interesting developments of late is investors getting specific about their international allocations. This is supported by the notable increase in trading volumes in some of our single country or region funds. For example:

“ETFs are about much more than a passive exposure.

“They are about tailoring your exposure to different markets and different asset classes by using the flexibility offered by ETFs. iShares is the only ETF provider in the market that gives advisers and their clients the ability to make such specific decisions about their portfolios: what country they invest in and whether they invest in midcaps, mega-caps or small caps etc. And they are using ETFs to provide exposure to more asset classes. Advisers have always been aware that fixed income remains a cornerstone of a well-constructed portfolio,” Mr Howie said.

A large number of investors used ETFs for the first time during 2013 because they found they could use them in a very specific way and were able to narrow down their investment choices.

“As we move into 2014 it is clear that investors are getting much more specific about the countries and regions they are including in their portfolios.

“Working with your adviser to gain that level of insight is important. International markets have been strong in the past year, and we expect the global economy to continue on its slow path to recovery. However, that does not mean there won’t be setbacks along the way. Some countries and regions are likely to outperform in the year ahead, and being discerning about investing opportunities will be a critical factor in success.”

Mr Howie said Australian equities continue to recover, led by solid performance from the local banks, however most investors remain heavily exposed to the local market, and the momentum was currently with international equities.

He said iShares was the only ETF issuer that provided local investors exposure to China, Japan, Korea, Taiwan, Hong Kong and Europe. Their use has increased in the past year as too has that of the most popular iShares – iShares S&P 500 (IVV), iShares Global 100 (IOO) and iShares MSCI Emerging Markets (IEM).

“As investors look to more dynamic asset allocation in 2014, we expect the use of ETFs will continue to grow.”

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