Build a better SMSF portfolio with ETFs

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Explore how ETFs can support SMSFs in:    Accumulation >    Retirement >

Following their launch in Australia, SMSFs were the ‘early adoptors’ of exchange traded funds (ETFs), and today represent ~30% of total ETF investors. Though the number of SMSFs using ETFs has grown significantly over the last few years, the proportion of total ETF investors they account for has fallen - simply because non-SMSF ETF investors have grown even more strongly!

This information is general in nature only and is not a recommendation to make any investment or adopt any investment strategy. Investing involves risk. The value of an investment and income distributions can go down as well as up. Before making an investment decision you should consider the relevant product disclosure statement and your particular circumstances, including your tolerance for risk, and obtain financial advice.

ATO figures suggest that the average SMSF portfolio is highly concentrated in domestic investments, especially Australian shares, cash and property. Such a portfolio mix can result in SMSFs exposing themselves to concentration risk and failing to meet their investment objectives under changing market conditions.

Building a well-balanced portfolio is important for SMSF trustees – and with ETFs it has never been easier.

It can be helpful to think of superannuation in two phases – the pre-retirement phase, when the focus tends to be on accumulation, and post-retirement, when the focus typically is on income.

There are ETFs that may be considered by an SMSF at either of these stages.

The importance of diversification for SMSFs

SMSFs in accumulation and retirement - how ETFs can help

Source: Investment Trends, as at end of August 2019 

Benefits of ETFs for SMSFs

Lower costs of investing

Fees can significantly affect the performance of investment portfolios over the long term. BetaShares' passive or rules-based investment funds generally have lower costs than traditional unlisted funds with comparable investment strategies, as there are no 'active management' fees.

Reduced portfolio construction burden

ETFs remove the need to choose individual investments such as shares or bonds.

The BetaShares Diversified ETFs are a series of four low-cost, all in-one investment solutions, designed to simplify portfolio construction and asset allocation decisions even further. Each Diversified ETF provides exposure to a range of asset classes, including shares, property securities, bonds and cash, across Australian and global markets. You can choose a portfolio to suit your risk profile.

The Diversified ETFs can be used either for your entire portfolio or as a core allocation.

Add international exposures - without additional administration

All of BetaShares ETFs and funds are Australian-domiciled which eliminates the requirements for W-8 BEN forms and the risk of US estate tax issues that can come from investing in products which are ‘cross-listed’ from the US, as is the case with a number of ASX-traded ETFs.

Transparency and simplicity

Fund information including value of the assets, net asset value per unit, indicative net asset value per unit and portfolio holdings, where applicable, are available daily on our website.

During pre-retirement, one of the main goals is typically to grow the balance of the SMSF. While the balance between growing and preserving capital is often adjusted in favour of preservation as retirement approaches, a proportion of the SMSF is still likely to be directed to growth investments and strategies.

ETFs can help in several ways during accumulation:

Exposure to growth assets

ETFs can offer exposure to assets, themes, and geographic regions that have the potential for growth, but which may be hard or costly to access directly. For example:

▸ The BetaShares NASDAQ 100 ETF (ASX: NDQ) provides diversified, low-cost exposure to the NASDAQ-100 Index, which includes many of the world’s most revolutionary companies including Apple, Google, Amazon and Facebook.

▸ The BetaShares Global Cybersecurity ETF (ASX: HACK) provides exposure to the leading companies in the global cybersecurity sector, which has emerged as one of the leading segments in the broader technology sector.

Instant diversification

ETFs are available to help spread funds across a range of asset classes, sectors and investments to maintain a growth profile, rather than taking the higher-risk approach of picking individual investments. ETFs can also provide diversified exposure through a single ASX trade.

For example, the BetaShares A200 ETF (ASX:A200) provides exposure to the largest 200 companies listed on the ASX for a management fee of just 0.07% p.a.1 (making it the world’s lowest-cost Australian shares ETF).

1 Other fees and costs, such as transactional and operational costs, may apply. Refer to the PDS for more information.

Leveraged exposure

Internally-geared ETFs are one of the few ways your SMSF can get geared exposure – though it’s important to understand that while geared strategies offer the potential for greater profit than ungeared alternatives, they also involve higher risk (including the potential for magnified losses).

The BetaShares Geared Australian Equity Fund (hedge fund) (ASX: GEAR) offers geared exposure to the returns of the Australian sharemarket, while the BetaShares Geared U.S. Equity Fund – Currency Hedged (hedge fund) (ASX: GGUS) provides geared exposure to the returns of the U.S. sharemarket, hedged to Australian dollars.

In post-retirement, an SMSF's focus is typically on capital preservation and income. ETFs can be of benefit at this stage too.

Pre-retirement phase (Accumulation)

Post-retirement phase (Retirement)

Attractive income

BetaShares has developed a range of income-focused funds which could be considered by SMSF investors in retirement phase.

They include a suite of ETFs that provide exposure to fixed income, an asset class that can be hard to access directly, such as:

▸ the BetaShares Australian Investment Grade Corporate Bond ETF (ASX: CRED) – pays monthly income at a rate expected to be higher than term deposits and government bonds.

▸ the BetaShares Australian Hybrids Fund (managed fund) (ASX: HBRD) – offers attractive, franked income from a portfolio of hybrid securities, actively managed to reduce volatility and risk.

There are also equities-focused ETFs that offer attractive levels of income, including:

▸ the BetaShares Global Income Leaders ETF (ASX: INCM) – invests in a diversified portfolio of 100 high-yielding global companies, screened for dividend sustainability.

▸ the BetaShares Legg Mason Real Income Fund (managed fund) (ASX: RINC) – invests in quality Australian companies that hold ‘hard’ physical assets, such as A-REITs, utilities and infrastructure securities. These companies are expected to pay strong dividend income from reliable revenue streams.

Lower volatility

Post-retirement, trustees may be seeking to reduce fluctuations in the value of their SMSF.

There are a number of ETFs that include volatility reduction as part of their strategy, including the BetaShares Managed Risk series of funds. 

The BetaShares Managed Risk Australian Share Fund (managed fund) (ASX: AUST) and the BetaShares Managed Risk Global Share Fund (managed fund) (ASX: WRLD) aim to defend against market losses whilst still providing exposure to the growth and income potential from a portfolio of Australian or international shares.

A SUPER Strategy to consider

Why do SMSFs choose to invest in ETFs?

Using ETFs to generate efficient after-tax outcomes

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