Renae Smith, chief of personal investment for Vanguard Australia, said the latest report marks a shift in asset allocations for SMSFs, with trustees reducing their allocation to cash holdings (from 22 per cent to 18 per cent) and direct shares (down to 27 per cent from 31 per cent) and nearly doubling their allocation to ETFs (from 5 per cent to 8 per cent).

“This increased allocation is observed across both advised and non-advised SMSFs, with non-advised SMSFs contributing to the bulk of the increase,” Smith said.

“Interestingly, nearly 60 per cent of newly established SMSFs intend to invest in ETFs over the next 12 months. SMSFs now account for 13 per cent of ETF investors, who cite diversification, exposure to specific overseas markets, and liquidity as their top three reasons for investing in ETFs.”

Dr Irene Guiamatsia, head of research at Investment Trends, said the growth in ETF allocation is an outcome of both adoption and the increased amount being allocated which rose from $180,000 to $250,000, with the growth looking to continue.

“Cash allocation dropped off after an uptick last year, and our research also showed that SMSFs are also quite willing to rely on capital investments,” Guiamatsia said.

“Similarly, the use of managed funds by SMSFs is also at an all-time high, with 285,000 SMSFs (over one-third of total SMSFs) holding an allocation to managed funds. This cohort of SMSF investors are mostly invested in international shares, and Australian shares both large and small/mid cap.”

Vanguard has around $126 billion of total assets under management with $55 billion in ETFs. As the desire for diversification continues to grow, especially among the younger SMSF trustees, there is an increasing interest in ETFs.

Guiamatsia said the report showed that the average balance of a fund at establishment has decreased from $500,000 in 2006 to around $330,000 while the age of establishment has dropped from 71 years in 2005 to just 47 years after 2019.

“More of these newly established funds have invested in ETFs and cryptocurrency as well as bonds,” she said.

“Property investment has stayed relatively stable, and there has also been an increase in investment in international shares.”

She said this reflects the younger demographic of SMSF trustees, their motivation for establishing a fund, and how they are accessing or using advice.

“The report found that newly established funds are primarily influenced by internet research and recommendations from friends or colleagues,” Guiamatsia said.

“They are a much more self-directed cohort than previous trustees. Their primary motivation for establishing an SMSF is the control they have over their investments and many recall being prompted by internet searches. However, this cohort also has fewer reasons to set up a trust but are drawn to the greater visibility of the assets in which they have invested.”