Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Self-funded retirees are all aboard the ETF bandwagon
Self-funded retirees are getting the message loud and clear – limiting their equity exposure to the ASX comes at a cost.
The latest University of Adelaide research into the investment performance of SMSFs revealed they lagged their APRA counterparts by 180 basis points (6.6 per cent to 8.4 per cent) in 2023-23, with their lack of exposure to overseas markets cited as a contributing factor.
“This (lack of exposure) is in sharp contrast with APRA funds that have a much larger proportion of their investments overseas, typically with larger weights,” says George Mihaylov, who headed the research project.
“This home bias generally leads to sub-optimal levels of investment diversification, as well as dampening earnings and returns during periods where the domestic stock market underperforms international markets – precisely what happened in 2022-23.”
It’s a lesson self-funded retirees are heeding with the upsurge in investment into overseas ETFs a telling piece of evidence. In 2023-24, figures from the US fund manager Vanguard showed investors added a record $33.5 billion into ASX-listed ETFs in 2024, with total assets rising 38 per cent to $239.09 billion. Of this $33.5 billion, half was channelled into international equities (predominantly the US).
It’s a trend continuing into 2025, with the Betashares Australian ETF Review showing there was another record $4.6 billion in net inflows in January.
ETFs are allowing clients to get far greater geographic coverage at low cost, Hugh Robertson (pictured), managing director of the Gold Coast-based Centaur Financial, tells The Golden Times.
“Most investors have a home bias risk because most of their holdings are in Australian companies. But that only represents about three per cent of the global share market. So, they’ve realised to get access to more growth-oriented sectors such as technology they need to have a more global allocation.”
It’s not just technology stocks, although the “Magnificent 7” – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – have become barbeque stoppers.
Robertson says crypto and gold ETFs are also attracting attention, but the prime focus among his clients is an equal-weighted ETF with US exposure.
“We saw how well the Magnificent 7 did last year. If earnings in the US broaden out as expected, then the 493 other companies that make up the S&P500 index could do well.”
Like Robertson, Viola Private Wealth executive chair Charlie Viola says interest in ETFs is higher because the broad-based indexes have done so well.
“Most clients see this and just figure it’s an easy, low-cost way to generate good returns. When the index is a high hurdle, and many active managers underperform them, it vindicates those using these ETFs as a means of portfolio management.
“The continued success of passive versus active has led people to conclude that holding the index is going to deliver a satisfactory outcome. They are easily accessible as well as allowing access to themes and countries in a different way to market-cap weighted investing.”
Viola says ETFs are an important tool that are used in most client portfolios where a broad-based exposure is paramount.
“This is especially the case with global equities where the index does tell a story, and usually all the good stuff floats to the top anyway.”
Marc Jocum, an investment strategist at Global X ETFs, is on the same page as Viola and Robertson in highlighting the pull of the US equity market and the ease with which ETFs allows clients to access it.
“Investors were keen to get exposure to the US market, especially after US equities experienced their best two-year run in a quarter of a century. This momentum could extend into 2025, driven by US exceptionalism and the prospect of stronger earnings growth under a pro-markets Trump presidency.”
It’s not just US equities. Gold ETFs are in demand, driven by bullion’s role as a hedge against inflation, fiscal deficits, trade tensions and broader economic uncertainty. With gold recently hitting all-time highs, demand has remained strong despite a rising US dollar. Bitcoin ETFs also are attracting interest as a satellite allocation to enhance risk-adjusted returns and hedge against fiat currency debasement.
Jocum says ETFs are rapidly becoming the preferred vehicle for investment exposure – with significant growth expected in the next decade.
“Remember, a substantial portion of investor capital is still sloshing around in traditional managed funds, listed investment companies and direct stock picking. With ETF penetration in Australia currently at just five per cent of total managed fund assets, there is an obvious upside.”
