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SMSFs stick with ETFs, but shift focus

SMSFs ETFs

SMSFs have been long-term users of ETFs, but market expansion has changed how they are now using them within their investment portfolios.

SMSFs remain one of the largest groups of investors in exchange-traded funds (ETFs), but they have shifted their views on how they use them within a portfolio, a wealth manager has said.

State Street Global Advisors (SSGA) Asia-Pacific head of SPDR ETF distribution Meaghan Victor said ETFs have increased in popularity since their initial launch into the Australian market 20 years ago this week and now rank third in terms of the level of assets invested.

Victor said SSGA research found ETF investors had, on average, invested $235,000 in Australian shares, $205,000 in investment property and $170,000 in ETFs, followed by $100,000 in term deposits and $90,000 in international shares.

This is reflective of portfolio holdings within SMSFs and she pointed out the research found 71 per cent of investors in ETFs were also SMSF investors.

“If we think about 20 years ago, it was when the superannuation guarantee contribution came into its own and when we launched our first funds at that time, many of the investors who were attracted to the funds were SMSFs and we have continued to have strong support from SMSFs over time,” Victor told smstrusteenews.

She noted that while early-to-market products, such as SSGA’s STW ETF that tracks the ASX 200 Index were still popular, investors had shifted their focus to thematic ETFs and no longer used them just as a peripheral investment in their portfolio.

“The growth of funds like STW, which is the largest in the Australian market, shows there is still interest in those index products, but with the growth of the sector there are now more choices and we are seeing more ETFs used in portfolios,” she revealed.

“In the past, ETFs were used as part of a core-and-satellite approach where the core was directly held shares or managed funds, but now there are stronger positions of the core being made up of ETFs because of their low-cost nature, while thematic ETFs and exposures are being used as a satellite investment.”

According to Victor environmental, social and governance (ESG) themes had grown very strongly as investors were seeking to adopt approaches that were “doing good”.

“We are seeing this in the fund inflows across the ETF sector into ESG funds and that trend is not a flash in the pan, but is here to stay, and we will see ESG become more integrated into the portfolios of investors,” she shared.

“The beauty of ETFs is that any underlying part of the investment market can be wrapped in the ETF wrapper, which makes it very accessible for investors.”

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