SMSFs still overloaded with Australian shares

Self managed superannuation funds (SMSFs) could benefit from a more balanced approach to asset allocation, including a greater exposure to international share markets, with local funds still investing a huge amount in Australian shares and property and very little in international shares.

Many SMSF investors have maintained a strong home country bias, often overweighting Australian shares due to their familiarity and appeal of high dividend yields, including the associated franking credit system.

While these features can be attractive, Australia only makes up around 2% of the global share market, meaning investors are missing out on diversification across sectors like healthcare, technology, and consumer brands that are underrepresented locally.

Familiarity with domestic stocks can create a false sense of security, potentially increasing concentration risk and reducing long-term portfolio resilience.

Although Australian shares may occasionally outperform global markets, like we saw in 2009 and 2010, this isn't guaranteed nor consistent, and there are often extended periods where they lag behind international counterparts.

ETFs offer SMSFs a simple, low-cost way to access global markets and diversify across geographies and sectors, without the need to pick individual stocks.

ETFs tracking global shares help investors build a more balanced portfolio aligned with long-term retirement goals, because true wealth isn't just mined from the Australian outback, but built by exploring opportunities beyond our borders.

Yet SMSFs are largely staying home.

Recent data release by the ATO showed that SMSFs' assets under management (AUM) stood at a record $1.02 trillion in the December quarter of 2025, with almost 30% of that invested in Australian shares and just 2% invested in individual offshore equities, or $18.65 billion.

SMSFs invested a near record $277.6 billion in Australian shares, or in the December quarter, representing 27.2% of all SMSF assets. In addition, SMSFs had invested a record $168 billion in direct Australian property, accounting for 16.5% of their total assets.

SMSFs held another $161.4 billion in cash investments as at December 2024, up from $160.7 billion in the September quarter, or around 16.0% of their total assets, despite falling savings account returns.

RBA data shows that bank term deposit rates across all maturities averaged just 3.20% p.a., down from 3.25% in February, while rates on one-year deposits fell to 4.0% from 4.1%. By staying invested in cash, SMSFs could be missing out on much greater returns elsewhere over the long-term and could be falling behind when adjusting for inflation.

Arguably, many SMSF portfolios need greater diversification and exposure to international share investment, which can offer more opportunity.

By investing internationally, you gain access to leading global companies such as Nvidia, Microsoft, Apple, Google, and Amazon and sectors such as robotics, AI and healthcare that are underrepresented in Australia.

International shares allow you to spread your investments across more countries, industries, and companies, reducing reliance on the Australian share market and economy. An important lesson when it comes to investing is that different markets perform differently over time. International exposure lets you benefit from growth in regions or industries that may outperform the Australian market at various times.

It's also evident that the US share market has easily outperformed the Australian share market in recent years.

Whereas the Australian share market has gained around 51% on a price return basis (94% if you include dividends) over the past five years to May 5, the Nasdaq Composite Index down is going to almost double, or 128% over the same time., and the S&P 500 has moved ahead 111%.

There are other diversification benefits of investing in international shares. Investing in unhedged international shares provides protection against local equity market volatility, whereby any fall in the Australian dollar helps to cushion equity market losses.

That's because a falling Australian dollar boosts returns for international investors when assets are converted into local currency. So if, for example, the Australian dollar falls 10%, the value of offshore investments would rise by 10%. For investors in offshore assets, such currency movements would represent a real gain on their portfolio.

ETFs have opened up the world of international shares and significantly reduced their costs. Traditionally, investing directly in international shares often involves higher brokerage fees, foreign exchange charges, and other costs, which eat into your returns, compared to investing in Australian shares alone.

Over time, these expenses can significantly erode returns. However, with an investment in an ETF, in a single trade, you can gain exposure to hundreds of international companies, and while there is a management fee associated, an ETF helps reduce the complexity of extra transactional and cumbersome fees.

There are hundreds of ETFs listed on the ASX which offer exposure to both developed markets and emerging share markets, which can help to build out the growth element of SMSFs portfolios potentially helping to provide much more robust returns over time.

Sticking only to Australian shares is like booking a holiday and never leaving your postcode - international markets open the door to a whole world of growth. For SMSFs looking to make the most of their retirement years, that extra passport stamp of international diversification could make all the difference.

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