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Many self-managed superannuation fund (SMSF) trustees love the greater control over investments that running their own fund gives them. This is backed up by research, such as this study in the Australian Journal of Management, confirming greater choice of investments is one of the more popular motivations for starting an SMSF.
That study, which involved a survey of more than 1000 superannuation members, found control over investments and tax minimisation were the most common reasons for starting an SMSF.
In the past, SMSFs have been criticised for being too heavily invested in cash and fixed income, and for having little diversity among their equity holdings. But this is changing, as SMSF asset allocations become more sophisticated.
What are the most popular asset classes among SMSFs?
The Australian Taxation Office (ATO) publishes a series of comprehensive data on asset allocation every financial year, based on the lodgings of SMSF annual returns. However, because of the lag between the end of the financial year and when trustees need to lodge, and the time it takes to collate the data, the latest annual figures are for the financial year ending in 2020.
The ATO also publishes quarterly estimates of asset allocation breakdown in the table below, sorted for the asset class with the highest allocation.
| Asset type | Sept 2022 ($m) | As a % of total Australian and overseas assets |
|---|---|---|
| Listed shares | 241,250 | 27.88% |
| Cash and term deposits | 138,898 | 16.05% |
| Unlisted trusts | 109,544 | 12.66% |
| Non-residential real property | 88,736 | 10.26% |
| Limited recourse borrowing arrangements | 61,925 | 7.16% |
| Listed trusts | 55,355 | 6.40% |
| Other managed investments | 50,019 | 5.78% |
| Residential real property | 47,856 | 5.53% |
| Other assets | 22,791 | 2.63% |
| Overseas shares | 14,268 | 1.65% |
| Unlisted shares | 11,166 | 1.29% |
| Debt securities | 10,492 | 1.21% |
| Loans | 5,931 | 0.69% |
| Other overseas assets | 2,610 | 0.30% |
| Overseas managed investments | 1,798 | 0.21% |
| Cryptocurrency | 1,458 | 0.17% |
| Collectables and personal use assets | 554 | 0.06% |
| Overseas residential real property | 352 | 0.04% |
| Overseas non-residential real property | 156 | 0.02% |
| Insurance policy | 94 | 0.01% |
| Total Australian and overseas assets | 865,245 | 100.00% |
| Borrowings | 24,176 | 2.79% |
| Other Liabilities | 8,111 | 0.94% |
| Total net Australian and overseas assets | 832,958 | 96.27% |
Source: ATO September 2022
Listed shares are the most popular asset class, representing 27.88% of all SMSF assets. That is followed by cash and term deposits at 16.05%, unlisted trusts at 12.66% and non-residential real property at 10.26%.
How does asset allocation vary depending on accumulation or retirement phase?
To provide a more up-to-date picture, SMSF administrator BGL analysed the asset distribution for the 2022 financial year of 60,185 SMSFs it has on its books that have lodged returns.
The following graph shows the asset class breakdown of SMSFs in accumulation phase, retirement phase and funds in both phases.
2022 tax return asset distributions by percentage
Source: BGL 2022 annual tax return data as at 14/2/2023
When comparing the asset allocation choices of SMSFs in the different phases, the biggest difference is the allocation to listed equities. This is much higher for SMSF trustees in retirement phase – at 45.18% – compared to those in accumulation phase at 20.83%. Funds with members in both phases have a relatively high allocation to listed shares as well, at 38.29%.
There isn’t too much difference between the asset allocations of all phases when it comes to cash and term deposits. Allocations by SMSFs in full pension mode are slightly higher at 20.3%.
Unsurprisingly, SMSFs in retirement phase have smaller allocations to illiquid assets, such as residential real property – 3.42% compared to 7.82% for accumulation phase. And there is a stark difference when it comes to limited recourse borrowing arrangements used to invest in real property, where SMSFs in accumulation phase have an allocation of 11.06%, compared to just 0.04% for funds in retirement phase.
As their members get older, and their minimum pension payments larger as a percentage of assets, SMSFs in retirement phase need sufficient liquid assets to meet these payments. There is also a tendency to seek out assets that pay higher yields, hence the popularity of listed shares with high dividend yields and franking credits.
How does SMSF balance relate to asset allocation choice?
The ATO also breaks down asset allocation based on SMSF balance size, which can also impact the asset allocation of an SMSF.
As the tables below highlight, the lower the balance of an SMSF, the higher the allocation to cash and term deposits. Funds with balances under $200,000 all have more than 35% in cash and term deposits.
When SMSF balances start to approach the $500,000 mark, their allocation to cash and term deposits reduces. But smaller funds still have a reasonable allocation to listed shares of between 20.4% and 23.7% for SMSFs with balances up to $500,000.
Interestingly, lower balance SMSFs have some of the highest allocations to cryptocurrencies, with funds between $50,000 and $100,000 having the highest percentage allocation to this asset class at 4.4%. This could reflect the greater acceptance of cryptocurrencies among younger people who have not yet had time to build their account balance.
| Asset Type | $1 to $50k | >$50k to $100k | >$100k to $200k | >$200k to $500k | >$500k to $1m |
|---|---|---|---|---|---|
| Listed trusts | 1.3% | 2.4% | 4.0% | 5.6% | 6.7% |
| Unlisted trusts | 2.4% | 5.2% | 7.5% | 7.0% | 7.8% |
| Insurance policy | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% |
| Other managed investments | 1.2% | 2.0% | 3.6% | 4.4% | 5.2% |
| Cash and term deposits | 53.1% | 44.3% | 39.3% | 26.3% | 19.8% |
| Debt securities | 0.2% | 0.3% | 0.3% | 0.5% | 0.8% |
| Loans | 1.8% | 2.4% | 2.2% | 0.9% | 0.5% |
| Listed shares | 20.4% | 22.2% | 22.7% | 23.7% | 25.4% |
| Unlisted shares | 2.2% | 2.6% | 2.2% | 1.2% | 0.8% |
| Limited recourse borrowing arrangements | <0.1% | 0.1% | 0.7% | 13.6% | 16.3% |
| Non-residential real property | 0.5% | 1.2% | 2.5% | 4.9% | 6.0% |
| Residential real property | 0.6% | 1.5% | 3.0% | 5.9% | 6.8% |
| Collectables and personal use assets | 0.2% | 0.6% | 0.4% | 0.2% | 0.1% |
| Other assets | 10.3% | 8.4% | 6.9% | 3.5% | 2.3% |
| Cryptocurrency | 3.9% | 4.4% | 2.4% | 0.8% | 0.3% |
| Overseas shares | 1.1% | 1.3% | 1.1% | 1.0% | 0.9% |
| Overseas non-residential real property | <0.1% | 0.1% | 0.1% | <0.1% | <0.1% |
| Overseas residential real property | 0.2% | 0.5% | 0.5% | 0.1% | 0.1% |
| Overseas managed investments | <0.1% | 0.1% | 0.1% | 0.1% | 0.1% |
| Other overseas assets | 0.4% | 0.4% | 0.4% | 0.2% | 0.2% |
| Total | 100% | 100% | 100% | 100% | 100% |
| Asset Type | >$1m to $2m | >$2m to $5m | >$5m to $10m | >$10m to $20m | >$20m to $50m | >$50m |
|---|---|---|---|---|---|---|
| Listed trusts | 7.5% | 6.9% | 6.1% | 5.3% | 3.9% | 2.4% |
| Unlisted trusts | 10.0% | 12.5% | 14.1% | 16.2% | 20.3% | 18.3% |
| Insurance policy | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% | 0.0% |
| Other managed investments | 6.3% | 6.7% | 6.6% | 6.0% | 5.6% | 2.8% |
| Cash and term deposits | 18.8% | 16.4% | 13.8% | 11.9% | 10.7% | 9.6% |
| Debt securities | 1.1% | 1.4% | 1.6% | 1.8% | 1.5% | 1.3% |
| Loans | 0.5% | 0.5% | 0.7% | 0.8% | 1.5% | 1.6% |
| Listed shares | 30.1% | 32.1% | 32.9% | 32.9% | 26.9% | 33.1% |
| Unlisted shares | 0.7% | 0.9% | 1.3% | 2.1% | 3.6% | 3.7% |
| Limited recourse borrowing arrangements | 7.1% | 3.4% | 2.9% | 3.0% | 4.3% | 9.5% |
| Non-residential real property | 7.8% | 9.8% | 10.9% | 10.2% | 10.8% | 9.3% |
| Residential real property | 6.1% | 5.0% | 3.7% | 2.9% | 1.8% | 1.8% |
| Collectables and personal use assets | <0.1% | 0.1% | <0.1% | <0.1% | <0.1% | 0.0% |
| Other assets | 2.3% | 2.3% | 2.5% | 2.8% | 3.0% | 2.8% |
| Cryptocurrency | 0.1% | 0.1% | 0.1% | 0.1% | 0.2% | 0.0% |
| Overseas shares | 1.1% | 1.5% | 2.2% | 3.1% | 4.4% | 2.7% |
| Overseas non-residential real property | <0.1% | <0.1% | <0.1% | <0.1% | 0.1% | 0.3% |
| Overseas residential real property | <0.1% | <0.1% | <0.1% | <0.1% | <0.1% | 0.0% |
| Overseas managed investments | 0.1% | 0.2% | 0.3% | 0.3% | 1.0% | 0.4% |
| Other overseas assets | 0.3% | 0.3% | 0.3% | 0.5% | 0.6% | 0.6% |
| Total | 100% | 100% | 100% | 100% | 100% | 100% |
Source: ATO (2020–21)
If you’d like to learn more about the most popular ETFs, Australian and international shares, managed funds and alternative investments, see the following SuperGuide articles:
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