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SMSFs love a “bargain”

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Published on: Friday, October 12, 2018

By Marcus Evans

Frustrated by the underperformance of many of the large blue-chips, that have until recently been among their favourite stocks, SMSF investors have increasingly turned to a more diversified group of mid and small cap companies that have shown strong gains over the past 12 months.

This trend has largely continued in 2018, with ASX20 shares now accounting for just 33% of the total value of shares traded by SMSFs, down from 40% a year ago. This compares to only 29% of trades by value performed by non-SMSF investors.

Top 3 stocks by value

The stocks most traded by SMSFs have remained largely unchanged. The top three most traded stocks by value remain Commonwealth Bank (CBA), Telstra (TLS) and National Australia Bank (NAB), although they now account for a smaller proportion of trades overall. The key changes were CSL (CSL) (into the top 10), and A2 Milk (A2M) moved up from eighth to fifth. On the flipside, Woodside (WPL) fell out of the top 10, and Fortescue Metals (FMG) fell from fourth to eighth.

TABLE 1: Top 15 shares traded by SMSFs (by value, as a proportion of total trades)

Some of the biggest trade value increases have included Mirvac (MGR), with trading by value up 937%, Wisetech Global (WTC) up 161%, AMP up 154%, and Afterpay Touch (APT) up 126.5%.

We also looked at SMSF trading behaviour in two strongly performing segments of the market over the last six months, the ASX Mid Cap 50 (Comprised of the companies in positions 51–100 of the S&P/ASX 200 index) and the technology sector. There was a clear overlap, with seven of the top 10 performing stocks in the S&P/ASX 200 over the 12 months to 30 June 2018 appearing in the top 50 stocks traded by SMSFs.

The blue chips still liked

SMSFs have not completely abandoned the traditional blue chips. They continue to have a strong attraction for value in the segment and we have seen SMSFs taking advantage of share price weakness to buy into companies, such as AMP, Ramsay Health Care and Telstra, in a blue-chip bargain hunt that reflects an underlying belief in the long-term prospects for these ASX stalwarts.

ETFs, LICs and LITs used to diversify

SMSFs increasingly use ETFs to diversify offshore. Over the last six months, we’ve seen this trend intensify, with internationally focused funds now comprising nearly 47% of all ETF trades, up from 44%. As a result, Australian share ETFs now account for only 42% of ETF trades, down from 43%.

ETF Trades by value and category

And that isn’t the only way SMSFs are using ETFs to invest beyond the Australian share market. While the top four ETFs have remained unchanged over the last six months, an analysis of the top 12 ETFs traded by value shows SMSFs increasing their exposure to currency and property, as well as international equities. The strength of this shift suggests it is being driven by a desire for greater diversification, rather than simply the relative performance of different markets.

The top 10 ETF and top 10 LIC / LIT

Like ETFs, SMSFs are increasingly using Listed Investment Companies (LICs) and Listed Investment Trusts (LITs) to gain exposure to new asset markets, particularly offshore. During the last six months, the value of international LIC and LIT trades by SMSFs has risen from 23% to 26% of total LIC and LIT trades.

Direct international trades climbing

As international trading becomes easier, and international companies become an unquestioned part of every day life, adding an Apple or a Facebook to an SMSF portfolio has become increasingly attractive.

Over the last six months, the value of direct International shares traded by SMSFs has grown by 30%, building on a 27% rise in the prior period. That has seen international share portfolios become increasingly diversified, with the average number of international stocks held by SMSFs rising from 5.7 to 6.4, compared to just 3.4 among other investors.

Looking at the top 15 international stocks held by SMSFs reveals a list of well-known names and strong share price performers, including Facebook, Amazon and Apple. They also include trusted names such as Berkshire Hathaway and Microsoft, with a strong overall US focus.

However Chinese-based stocks, particularly technology stocks Ali Baba and JD.com are represented and, over the last six months, some of the largest increases in trading value have been Chinese-based bank stocks.

This interest in international diversification among SMSF investors extends beyond individual companies to ETFs available only on foreign exchanges. As a result, the value of offshore ETF holdings has increased 49% over the last six months, albeit from a low base.

Summing up

Looking back at the last six months, SMSF investors are becoming increasingly diverse and sophisticated in their investment choices. While their portfolios are still heavily weighted towards larger stocks, SMSFs are also looking beyond the S&P/ASX 20, as well as taking advantage of market dips to buy into blue-chip shares at a bargain price.

They are also increasingly likely to diversify offshore and into other asset classes using a variety of investment vehicles, including ETFs, LICs and, increasingly, direct international equities. Overall, this trend towards greater flexibility and diversification is a positive development that augurs well for the future of the sector.

Extract from the CommSec SMSF Trading Trends Report, an in-depth exploration of the online trading behaviour of SMSF investors, released every six months. It is not intended to replace professional advice. As this information is prepared without considering objectives, financial and tax situation or needs, before acting on it, consider its appropriateness to individual and client needs. Consider seeking professional advice relevant to individual needs. CommSec will not be liable for any loss or damage as a result of the reader relying on this information.

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