Higher portfolio allocation to the materials sector a feature in 2021
Self-managed superannuation funds (SMSFs) have been growing less quickly in recent years, but still represent more than 1.1 million Australians and a quarter of all superannuation assets.
As individuals managing their own retirement savings, SMSFs give an excellent insight into how Australians, particularly retirees and pre-retirees, choose to invest. At nabtrade, we get to see people’s retirement investment choices in real-time.
According to the Australian Tax Office’s SMSF statistical report, allocations to cash and term deposits in SMSF have remained stable over the last five years, now representing around 20% of total assets. This has been as high as 30% in the past, reflecting trustees turning away from secure assets to seek yield as interest rates hover near zero.
Total listed share investments have increased by 21% and listed trusts have increased by 90%, however direct shares still account for over 26% of total assets, while listed trusts are just 6%. The combination of listed assets has been as high as 40% in the last decade, but market falls due to COVID-19 have reduced this to just 32%.
At nabtrade, SMSFs represent less than 10% of our total accounts, but more than 30% of trading volumes, assets held, and cash. SMSF customers are generally older and much wealthier than the average nabtrade customer; many have personal accounts as well as their SMSF.
They’re also generally well informed about shares and place larger, higher-conviction trades when they invest.
How SMSF share portfolios have changed in 12 months
Firstly, cash balances have continued to grow over 2020, despite record low interest rates. But the growth of these balances has slowed. SMSF cash balances grew well above 10% per annum leading up to 2020; they only grew by 9% last year.
This growth in cash usually reflects a conservative mood among trustees; they will save rather than reinvest dividends and start taking profits if they believe the sharemarket is due for a pullback, and switch from buying equities to holding or selling, keeping the proceeds in cash as they wait for a buying opportunity.
2020 provided the buying opportunity nabtrade SMSF trustees were waiting for – they switched aggressively from selling to buying shares, and poured hundreds of millions of dollars into the sharemarket.
Despite this, they still managed to grow their cash balances, bringing in cash from other sources. Many SMSF are clearly keeping their powder dry, expecting a pullback after the market’s astonishing strength post-COVID-19.
The real shift is at the sector level. Financials have always comprised the bulk of the average SMSF portfolio, as retirees enjoyed the strong yields provided by the big four banks.
Despite the enthusiastic buying of the banks during the depths of the COVID-19 crisis, SMSF allocations to financials have dropped 4% over a single year (to the end of February 2021).
Almost all of this decline has been picked up in materials, which have climbed from less than 13% of the average portfolio to 17%.
Nabtrade investors, particularly SMSFs, are known to take profits from strong performers, but there has been no sign of this in the materials sector.
BHP Group (ASX: BHP) is a great example, with almost no selling during 2020; it has now risen from the 6th most popular stock among SMSFs, to the 3rd. Fortescue Metals Group (ASX: FMG) has risen from 16th to 10th.
One unique characteristic of SMSFs is their preference for traditional managed investments, albeit listed or quoted ones.
An ASX200 Exchange Traded Fund (ETF) - the Vanguard Australian Shares Index ETF (ASX: VAS) - Australian Foundation Investment Company (ASX: AFI) and Argo Investments (ASX: ARG) are all in the top 20 investments and have remained relatively constant.
Performance drags
What has hurt performance? The recent weakness in CSL (ASX: CSL) has seen it drop from 4th to 6th, despite huge buying from all nabtrade investors as the price has fallen back to its COVID-19 lows.
Also, the entire energy sector, of which AGL Energy (ASX: AGL), Woodside Petroleum (ASX: WPL) and Santos (ASX: STO) are in the top 20, has been a significant drag (although the sector allocation is still roughly the same, suggesting investors bought more during COVID-19).
SMSF positioning for 2021
Portfolios appear more balanced than previous years, with a higher allocation to materials (in which they were very underweight) and a lower allocation to financials, while healthcare has a greater allocation with buying in CSL and Cochlear (ASX: COH) joining the top 20 stocks.
The top 20 stocks comprise approximately half of all holdings, suggesting a fairly diverse average portfolio.
Eagle-eyed readers will note that some of the most popular stocks from 2020’s investor buying spree, including Afterpay (ASX: APT), Zip Co (ASX: Z1P), Qantas Airways (ASX: QAN) and Flight Centre Travel Group (ASX: FLT), don’t make the top 20. Zip Co is number 24, while the travel stocks are outside the top 49.
Clearly, the “reopening trade” (stocks that benefit from border reopenings, such as travel companies) has not been as popular with this more mature SMSF audience.
The full top 20 stocks, and the proportion of nabtrade SMSF investors who hold them, is below.