ETFs and self-managed funds growing

Robin Bowerman, Head of Retail at Vanguard Investments Australia.
Robin Bowerman, Head of Retail at Vanguard Investments Australia.

AS Exchange Traded Funds (ETFs) become increasingly popular among Australian investors, their use as the core equity portfolios of self-managed superannuation funds will inevitably keep rising.

A key challenge often facing trustees of new SMSFs, in particular, is how to create large and appropriately diversified equity portfolios from scratch. More fund trustees are likely to view ETFs as a low-cost, tax-efficient, convenient and transparent means to create that core portfolio.

And the strategy of using ETFs as the core of an equity portfolio and directly-held shares or actively-managed funds as “satellites” may appeal to many fund trustees, depending upon their circumstances – including any advice from their financial planners.

Given that ETFs are traded in the same way as shares, fund trustees can easily rebalance their exposure to equities when appropriate.

Further, ETFs that track an international equity index can provide SMSF trustees with a means to conveniently gain widely-diversified overseas exposure.

Both ETFs and SMSFs have experienced remarkable growth over the past year.

ASX statistics show that the market capitalisation of ETFs listed in Australia rose by 141% over the 12 months to January, as discussed earlier this month by ETF commentary.

The number of new SMSFs increased by almost 26,000 to more than 417,000 over the 12 months to September, according to the latest figures released by the Australian Prudential Regulation Authority (APRA).

And total SMSF assets have reached $370 billion, bringing the average asset value of an SMSF close to $900,000.

Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.

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