Only half of SMSFs own shares

Are the other half missing out on the bull market?

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published May 21, 2013 3:53 pm AEST

The 2012 ASX Share Ownership Survey has been released today and makes for interesting reading.

Among other findings, just 52% of Self-Managed Super Funds (SMSFs) held shares directly in a company listed on the ASX, the same as 2008 and 2010. SMSFs reported an increase in residential property at 19%, up from 11% in 2010, and commercial property at 12%, up from 10% in 2010.

The number of SMSFs holding derivatives has fallen by 50% to just 2% since 2010, while investments in unlisted managed funds appears to have stabilised at around 16-17%, after dropping from 38% in 2008.

It might be interesting to speculate on why almost half of all self-managed super funds don't invest directly in shares. Perhaps they have chosen to invest in other assets, such as cash, unlisted fixed income securities, bonds, property and most likely unlisted managed funds.

In the case of unlisted managed funds, SMSFs will be paying two lots of fees. One to administer their SMSF, and the normal fees charged by the unlisted managed funds. It would make more sense to dissolve the SMSF and invest directly in the unlisted managed fund. Even better, redeem the unlisted managed funds and invest directly in shares, thereby avoiding the double fees, and giving the investor a greater chance of outperforming the market.

Many unlisted managed funds benchmark themselves against an index, and as a result are likely to hold the majority of the largest stocks in the index. That means holding stocks like Fortescue Metals Group (ASX: FMG) which has dropped 25% in the past 12 months, Newcrest Mining (ASX: NCM) which has lost 39% of its value and Rio Tinto (ASX: RIO), which is down 1.3%. Over the same period, the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained 27%.

Foolish takeaway

A simple index tracking exchange-traded fund (ETF) can provide similar results to the index, with much lower fees. Even better would be an investment in high quality ASX shares, with good growth potential, paying a decent dividend.

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