Which asset class are self-managed superannuation funds abandoning in favour of shares?

28/04/2024

man and woman discussing superannuation

Over the past five years, the amount of money invested by self-managed superannuation funds (SMSFs) in cash and term deposits has decreased from 22% in December 2018 to 16% in December 2023.

This is despite the Reserve Bank of Australia lifting the official cash rate 13 times since May 2022.

Meantime, the amount of money allocated to ASX shares, overseas stocks, and other asset classes has increased, according to recently released figures from the Australian Taxation Office (ATO).

We investigate.

The top asset class among self-managed superannuation funds

There is just under $914 billion invested through self-managed superannuation funds in Australia.

Of that, the bulk is invested in listed shares, and this asset allocation has increased from 26% of SMSF monies in December 2018 to 29% in December 2023.

The next biggest category of investment for SMSFs is cash and term deposits at $146 billion.

Now, this is where it gets interesting.

The asset class being abandoned in favour of shares

The ATO figures show the asset allocation to cash and term deposits has gone down over the past five years from 22% in December 2018 to 16% in December 2023.

This may seem counterintuitive given interest rates began rising for the first time in a decade in May 2022.

If we drill down further, we see that the allocation to cash increased for a little while after the Reserve Bank began lifting interest rates.

In March 2022, the allocation of self-managed superannuation fund monies to cash was 15%, and by June 2022, it had jumped to 18%. But that is where it peaked.

Despite the RBA continuing to raise rates throughout 2022 and 2023, SMSFs’ allocation to cash began drifting down from the December 2022 quarter.

Of course, the banks did not pass on all 13 of those cash rate increases to savings customers.

It’s also worth noting that shares delivered a decent return over this five-year period.

The S&P/ASX 200 Index (ASX: XJO) increased in value by about 22% between the December 2018 and 2023 quarters.

On top of that were dividends, with ASX 200 stocks typically delivering a 4% yield per annum.

Where else have SMSFs been redirecting money?

As the portion of monies in self-managed superannuation funds allocated to cash and term deposits declined, allocations to other asset classes, besides shares, increased.

Exposure to listed trusts went from 5% to 6%, while unlisted trusts went from 12% to 13%.

The allocation to real residential property remained stagnant at 5%. The same goes for non-residential property at 10%.

How many self-managed superannuation funds are there?

About 1,117,000 Australians have a self-managed superannuation fund.

Most funds have one or two members, and there are just under 600,000 Australian SMSFs registered today.

Over the 12 months to June 2023, 27,110 new SMSFs were set up and 10,741 were closed down.

ATO figures show the median value of an Australian self-managed superannuation fund is $826,299. The per-member median is $467,187.

Which ASX shares are popular with self-managed super funds?

According to Super Guide, the top 10 most popular ASX shares among SMSFs are:

As my colleague Kate reports, self-managed superannuation funds favour these stocks for their stability, dividend yield, and growth potential, making them suitable for long-term investment in retirement.

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