Produced in partnership with Betashares.
US equities are the Nathan Cleary of the investment universe. In the same way that Cleary carried the Penrith Panthers to its fourth straight NRL premiership in 2024, US equities have carried the performance of global equities for the past 10-15 years.
For the 10 years to 31 March 2025, the MSCI World Index returned 10.1 per cent annualised, of which US equities, which represents over 70 per cent of the index today, delivered 12.5 per cent per annum.
Last year alone, the S&P 500 jumped more than 25 per cent. This followed a 26 per cent increase in 2023.
Like the Panthers’ historic four-peat, it’s a remarkable track record but not every investor benefited.
While global equities make up anywhere from 35 – 45 per cent of the average APRA-regulated superannuation fund’s ‘High Growth’ asset allocation, it’s a different story for the nation’s 625,000 self-managed superannuation funds (SMSFs), which account for $1 trillion in assets.
According to the 2024 Class Benchmarking Report, SMSFs hold 28.3 per cent in direct Australian equities, 21 per cent in direct property, and 15.2 per cent in cash and term deposits, based on an analysis of the 190,000 SMSFs administered by Class.
When examining asset concentration, the Class report found that 84.8 per cent of the group’s SMSF assets are concentrated in those three asset classes plus a splattering of managed funds and unlisted trusts.
Global shares represent just 2.3 per cent of assets, according to Class. Within that small allocation, technology stocks account for about 75 per cent.
Diversification, liquidity and low fees
Historically, Australian equities have performed strongly, with the ASX 200 returning around 8.56 per cent per annum for the 10 years to 31 March 2025.
Australian direct property (using the Property Council of Australia/MSCI Australian Property Index as a proxy) also delivered 8.5 per cent per annum, for the ten years to end 2023.
But in the current environment of heightened risk and uncertainty, broad diversification across regions, factors and sectors has become even more important, says Hugh Lam, Investment Strategist at Betashares.
“Australian investors have a real home country bias because they’re familiar with domestic names like Woolworths, Telstra, etc. and they like them for the income and franking credits they provide. But it’s important to note that the Australian share market accounts for a very small part of the global economy’s market capitalisation. SMSFs can simply diversify some of their domestic exposure by investing offshore through a transparent vehicle like an ETF,” he tells Professional Planner.
Around 9 per cent of SMSFs invest directly in international stocks, based on the Class report. The top 20 direct international holdings are predominantly large cap US names such as Microsoft, Apple, PayPal and Mastercard.
The Class report also found around half of the group’s SMSFs invest offshore using managed funds and ETFs.
As of 30 June 2024, ETF assets accounted for 5.44 per cent of Class portfolios or $17.7 billion, representing a 15.4 per cent year-on-year increase.
Of the ten most popular ETFs used by Class funds, four are broad-based international share funds, giving investors exposure to a large and diverse mix of countries, sectors and themes. Three are US-only funds that track broad indices.
According to Lam, ETFs are an important tool for helping SMSFs reduce stock-specific risk.
“SMSFs are upping their exposure to global equities using ETFs to gain greater diversification beyond the Australian stock market and this will only accelerate,” he says.
“There are lot of global ETFs available out there so investors can determine if they want a Nasdaq ETF or India ETF or something more diversified to gain broader exposure to the global economy.
“More recently, we have seen increased interest in Global Ex-US ETFs given recent market volatility caused by Trump’s tariff policies. These are ETFs which provide investors exposure to other parts of the global market excluding the US share market, allowing investors to diversify their portfolios regionally.
“SMSFs can also adjust their defensive allocations where they see fit by investing in Fixed Income ETFs. With such a broad offering across cash, credit income and fixed-rate bonds, they are an effective tool to dial up or dial down risk in a portfolio.”
But diversification is just one of three key factors behind the rising adoption of ETFs by SMSF trustees.
Other critical benefits are liquidity and cost savings.
When it comes to liquidity, SMSFs need easy access to funds to cover a range of costs including administration fees and income tax payments. In retirement, members need to draw on their savings and investments to fund their lifestyle and may need to cover large expenses like holidays and renovations.
Retirees also have minimum drawdown obligations to meet once in pension phase.
“Trustees and retirees have a variety of expenses and obligations, and ETFs provide the necessary liquidity to meet those needs” he says.
“We also that direct property makes up a large portion of SMSFs asset allocation but it is a highly illiquid asset class. It may be prudent to consider having assets like ETFs which can be easily liquidated if/when necessary. This, alongside the diversification benefits and the low-cost nature of ETFs, has been a key driver behind their rapid adoption by SMSFs.”
