05 Apr How self-managed super funds are investing
Self-managed super funds now manage more than $880 billion in assets, but where exactly are they investing and what can other investors learn from them?
Australia’s self-managed superannuation fund segment is continuing to grow.
New data from the Australian Tax Office released in early March shows the number of SMSFs surpassed 600,000 for the first time in the last quarter of 2022.
According to the ATO’s December 2022 quarterly data, around 5,800 new SMSFs were established over the three months, increasing the total number of SMSFs to 602,883 and the number of people managing their own retirement savings to more than 1.13 million people.
Key asset allocations
SMSFs controlled more than $880.5 billion in Australian and overseas assets at the end of 2022, an increase of around $20 billion over the previous quarter.
How SMSFs were invested, in aggregate terms, shows continued strong weightings towards Australian-listed shares and cash – which collectively represented 44.6 per cent of total SMSF assets.
SMSFs on aggregate owned just under $260 billion in listed shares (an ATO segment that excludes holdings in overseas shares) and around $136.5 billion in cash, the second-biggest asset allocation.
The large holding in Australian shares indicates a strong “home bias” by many SMSF investors investing in equities. We’ve recently spoken about the disadvantages of home bias in this Smart Investing article, How diversification fights investor biases.
Likewise, the ongoing large holdings in cash and term deposits indicates a possible reluctance by many SMSF investors to explore higher-risk investment opportunities.
Cash was certainly a buffer against the volatile conditions on financial markets over the last year, despite cash returns having lagged most other asset classes over the longer term.
That SMSFs have large cash holdings has been a persistent trend, although more recently there has been a global shift from cash by many investors into fixed interest securities. Read our recent Smart Investing article on this trend, Weighing up cash deposits.
Holding third place on the SMSFs asset allocation board were unlisted trusts – a sizeable broad segment that incorporated around $113 billion of investments in managed funds (products offered by fund managers such as Vanguard) and unlisted property trusts (including investment units in private property developments).
Non-residential real property ($87.3 billion) remained the fourth-largest segment for SMSFs. This largely reflects the ability for SMSF trustees under superannuation law to own and occupy a commercial property through their SMSF.
Rounding out the top five were limited recourse borrowing arrangements ($61.2 billion), also known as LRBAs.
SMSFs are able to take out a LRBA (loan) from a third-party lender and use the funds to buy other assets (under strict conditions), which are held in a separate trust. In the event of a loan default, lenders have limited recourse because their rights to repayment are limited to the assets in the separate trust.
The table below shows individual SMSFs on aggregate have 96 per cent (around $845 billion) of the total pool of SMSF assets (around $880.6 billion) invested into 10 asset segments.
The top 10 SMSF Asset Allocations
| Asset type | Value ($ millions) As Of 31 December 2022 | Value ($ millions) As of 30 September 2022 |
| Listed shares | $256,429 | $235,793 |
| Cash and term deposits | $136,498 | $137,302 |
| Unlisted trusts | $113,070 | $109,721 |
| Non-residential real property | $87,392 | $89,770 |
| Limited recourse borrowing arrangements | $61,230 | $62,896 |
| Listed trusts | $55,604 | $53,957 |
| Other managed investments | $48,885 | $49,204 |
| Residential real property | $46,811 | $48,084 |
| Other assets | $23,406 | $23,558 |
| Overseas shares | $15,566 | $14,314 |
| Total | $844,891 | $824,599 |
Source: Australian Tax Office. Data as of 31 December 2022
Broader lessons for investors
The primary reason most people set up a SMSF is to have total control over how their super money is invested.
But the strong weightings to certain asset classes suggests some SMSFs may not be as diversified as perhaps they should be.
This includes many SMSFs having overweight holdings in Australian shares, cash, and direct property.
Higher holdings in Australian shares may reflect tax benefits, such as being able to use dividend imputation credits to reduce taxable income.
As noted above, large direct property investments may also reflect the ability for SMSFs to own commercial properties that are used as business premises by fund members.
And some SMSFs may have relatively high cash allocations to ensure they can smooth out income payments to members in pension phase, especially during times of heightened volatility on financial markets.
Others may be keeping cash on hand to make lump sum withdrawals during retirement.
A good asset allocation strategy needs to align to your specific requirements, as well as your risk profile, to ensure your long-term investment goals are achieved.
Ideally, it should include exposure to different asset classes, such as shares, bonds and property, and have a spread of investments within asset classes, such as in different countries, sectors and securities.
Feel free to contact our investment team to find out how we can help you reach your financial goals. Give us a call at 08 8231 4709 or send us an email at info@centrawealth.com.au.
