SelfWealth announced Wednesday (12th December 2018) that it would be launching the SMSF Leaders Fund in the new year, a “crowdsourced” ETF consisting of the best-performing ASX 200 stocks currently incorporated in the top 1 per cent of SMSFs.
The broker worked in partnership with BGL, a leading developer of SMSF administration software, to collect data from more than 50,000 self-managed superannuation funds over a period of four years.
From the SMSFs analysed, a pool of the top-performing stocks was identified and then broken down to the best 80–100 that are listed on the ASX in order to create the fund.
The composition will change over time, depending on what the top 1 per cent own.
SelfWealth founder and managing director Andrew Ward said that the ETF was created to allow SMSF holders to draw on the knowledge of their best-performing peers.
“I think SMSF holders either have too much research or not enough,” Mr Ward told Nest Egg.
“We tend to find that they’re asking their accountants a lot for advice, which they can’t give, of course, so they just sit on their hands. They think it’s lovely having an SMSF for the control, flexibility and cost, but they don’t really have a view on their performance."
Mr Ward said this leads many people to seek out advice and recommendations from their friends and family, as well as the media.
“Every single one of these self-managed super funds [that we’ve analysed] are so heavily self-interested in their own performance and in their own retirements for their families. [They’re] not sticking to indices necessarily," he said.
“Everyone is really looking out for their best interests. You are taking the best of people who are all looking out for themselves, not just relying on one person who is picking stocks based on several biases.”
His claims reflect recent research conducted by ASIC which found that 26 per cent of established SMSF members commonly sought help and advice on their SMSF from family members, while 15 per cent admitted to seeking the opinion of their peers.
However, the Australian shares-focused ETF comes on the back of concerns by a number of investment experts at the overallocation of SMSFs to Australian stocks.
Speaking earlier this year, Robin Bowerman, head of corporate affairs at Vanguard, said that the misconception of SMSF holders that holdings across a range of Australian shares constitutes “diversification” results in high risk to portfolios.
“The definition of diversification is concerning, with 84 per cent of respondents considering an investment across 30 Australian shares represents a well-diversified portfolio, when instead it is harbouring high equity concentration risk and home country bias, in addition to very low levels of exposure to international shares and bonds,” Mr Bowerman said.
“We believe while there is a growing understanding of diversification, SMSFs seem to be bearing significant risk, largely relying on continued success of the Australian share market, which represents just 3 per cent of the global investable equity market.”
His words were echoed by Andrew Zbik, senior financial planner an Omniwealth, who told Nest Egg in early 2018 that the overweight allocation to Australian shares leaves Aussie investors vulnerable to market volatility.
“Australian shares are defined as a ‘growth’ asset and are susceptible to greater volatility compared to property and fixed income assets,” he said.
“The chase for yield has been attracting many Australian investors for two decades. But the consequences of a lack of diversification have been demonstrated in the last year.”
Check out these Nest Egg articles for more information on diversification in SMSF portfolios, follow the below links:
- Portfolio diversification, am I doing it correctly?
- Diversifying beyond Australian shares, property and cash
- How many eggs and in which basket?
- Decoding diversification with ETFs
- How exchange traded funds can diversify your portfolio