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What top SMSFs are buying

Photo of Andrew Ward By Andrew Ward

min read

Social networking platform for super investors reveals most favoured stocks.

In the past six months, Australian stockholders on the social network for investors, SelfWealth, did something surprising. They invested heavily in mining stocks and at the top of their buy list was BHP Billiton.

This was at a time when media coverage of the company was negative. Following the tragic mine flood disaster in Brazil, many investors were selling BHP.

The basic investment philosophy is to buy low and sell high, but typically this is not what people do. They listen to the noise, believe the hype and buy high, then they panic and sell low. It’s basic human instinct, but it’s deeply flawed.

The tens of thousands of investors on the SelfWealth by and large, did the opposite. Many are in self-managed super funds (SMSFs) and are among the more than one million Australians who have invested more than $5 billion in them.

Snapshot of SMSF fund members

In Australia there are 557,000 SMSFs holding $590 billion in assets, with more than one million members, according to the Australian Taxation Office, which provides a comprehensive annual report on the sector.

Average assets per member are $564,000 and the average number of shares is 18, with 51 per cent invested in banks and resource stocks.

The majority of the SMSF members on SelfWealth are over 65. By investor type they are 50.5 per cent male, 11.1 per cent female, 28.9 per cent accumulation phase and 9.38 per cent pension phase. A breakdown by gender shows women have an average return of 5 per cent, outperforming men at 1.4 per cent.

A survey of the SelfWealth member base reveals a small but significant difference in strategy: males invest in the most popular stocks while women invest in brands they know and trust.

What SMSFs own

Australian investors in SMSFs are largely conservative. They tend to rely too much on investing in the ASX 200, perceiving these stocks as “safe”. Although the ASX 200 is recalculated quarterly, it has been our observation that very few SMSFs are revisiting their investments on such a regular basis. Traditionally, SMSFs will see their accountant once a year to review their fund – it is not enough.

This holds true for the accounts in SelfWealth. Rather than take specific advice from one person, on SelfWealth investors can see what and how top-performing funds are managing their portfolios and use the platform’s risk and safety ratings to optimise their investments.

Of the 10 top-performing SMSFs in the SelfWealth community, only one had a performance preference for growth, and the remainder income and growth. Essentially, nine out of 10 are quite conservative in their investments.

The top 10 held stocks held by these portfolios are shown below:

Table of top 10 holdings

Source: SelfWealth

As an added insight, below are the top 20 stocks from the 200 top-performing SMSFs on SelfWealth. They include a mix of the top ASX stocks as well as key exchange-traded funds.

 

Best performers table

Source: SelfWealth

How SMSFs are investing

A snapshot of investor portfolios from September to March reveals some surprising changes.

In the past six months there has been a marked change in investing trends. Mining stocks were in favour with the SelfWealth community while food and beverages were out.

The chart below shows how sector allocations in member portfolios on the SelfWealth platform have changed since September 2015.

Table of sector performance

Source: SelfWealth

Conclusion

Another key finding by the ATO was that larger SMSFs actually outperformed smaller funds.

Further to this is the issue of diversification. While the ATO says the average number of holdings in an SMSF is 18, different weightings and origin of equities may be needed to boost performance.

The top-performing investors in the SelfWealth community have a high “safety rating”, which means they have a diversified portfolio covering a range of growth equities.

The highest rated, at three stars, in the past year significantly outperformed the ASX, at 2.7 per cent compared to the ASX, which is down 3.4 per cent.

However, our analysis shows there is vast room for improvement in the returns of Australian SMSFs.

About the author

Andrew Ward is the founder of SelfWealth, the social network for investors. A former head of private wealth at CBA, he has more than 20 years experience in the financial services industry.  SelfWealth is a unique solution that empowers investors by enabling them to compare their portfolios with peers, professionals and the market via a low, flat fee monthly subscription.

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