How to Structure an SMSF Portfolio using Funds and ETFs

You’ve decided to join more than 1.2 million Australians in managing your own self-managed superannuation fund (SMSF), but where do you start to build your portfolio? Just as with any investment portfolio, you can make it as simple or as complicated as you like, but it needs to align with your investment strategy.

The good news for those that are worried about complexity is that you can take some of the administration out by using managed funds and ETFs, and this can make your portfolio faster to build. They can add diversification and, depending on what you use, may even reduce your costs.

Not all funds will be well-suited to an SMSF, so it can take some time to plan out your structure.

You should follow the usual basics of building a portfolio – setting your strategy and goals, and mapping out the funds that fit these.

Here’s how you can start.

Matching Your Investment Strategy and Fund

When you set up your SMSF, you’ll have established a Trust Deed that outlines the members of the fund, how death benefits are to be paid and the purpose of your SMSF.

Some Trust Deeds may also choose to outline specific types of investments that you can and can’t invest in. For example, if you have ethical concerns, you may choose to reference in your Trust Deed certain exclusions on types of companies. Any investments you use in your SMSF must fit with superannuation laws – they must meet:

• The sole purpose test: the investment is for the sole purpose of providing retirement benefits to the SMSF members.
• Be made on a commercial arm’s length basis and reflect true market value.
• Be in the best interests of all members of the SMSF.
• Show clear ownership by the fund.

As part of this process, or just after, you’ll set out an investment strategy. This should be recorded and tailored to the SMSF. You’ll need to consider:

• Financial goals
• Required investment returns
• Your current financial circumstances and needs
• Risk tolerance
• Liquidity requirements
• Diversification and assets to meet your goals
• Any insurance you might choose to hold.

Your investment strategy is less about the minutiae of the underlying investments; it’s more about mapping out which assets you are likely to use and in what proportion. You’ll need to be able to justify the asset proportions you’ve chosen and why they fit your goals and strategy. You should be able to consider growth and defensive targets and then match assets to this.

You should review your investment strategy regularly, and whenever significant events, from life changes to market events, occur.

Asset Allocations for your Strategy

Your investment strategy will have a target, such as aiming for a 3% return above inflation each year (nb: that this can’t be static. If inflation were 7%, achieving a 10% return would be potentially unrealistic).

This will guide the growth and defensive allocations and asset classes you choose. Usually SMSFs will include Australian and global equities, property, alternative investments (such as private equity and private credit), domestic and global fixed income, property and cash.

Looking at retail and wholesale superannuation providers can give you an outline of asset allocations based on targets. Some providers which offer SMSF-style portfolios will also offer you guidance on ranges. You can dial up or dial down within those ranges based on market conditions and the outlook.

To give you an example of asset allocation ranges, Mason Stevens’ retail Growth Portfolio follows. This targets a return of around 6.4% pa based on its 2025 assumptions:

Equities

• Australian 12-42% (SAA weight 27%)
• Global Equities 19-49% (SAA weight 34%)

Fixed income

• Australian 0-22% (SAA weight 7%)
• Global 0-22% (SAA weight 7%)

Property

• Australian 0% (SAA weight 0%)
• Global 0-20% (SAA weight 5%)

Global infrastructure 0-20% (SAA weight 5%)

Alternatives
• Growth 0-24% (SAA weight 9%)
• Defensive 0-19% (SAA weight 4%)

Cash 0-17% (SAA weight 2%)

Selecting your goals and asset allocations then allows you to narrow in on the funds that will best suit those allocations.

Selecting Funds and ETFs

Having the asset allocation plan in place will assist you in working out which funds might suit and you can dial up or dial down your allocations to meet changing market conditions and goals.

You may also want to consider a ‘fee budget’ for how much you want to spend across the portfolio – you may choose to save fees by passive options where possible, allowing you to use more of your fee budget for selective actively managed options.

You might start with core investments to cover off each asset class – potentially only one core option per asset as there can be crossover and then use selective tilts within each to access specific investment views you have or to bolster your expectations of market conditions.

Some investors use passive investments for their core investments and actively managed options for their selective tilts. Keep in mind that some asset classes are difficult to access in a passive format, such as private markets which may better suit actively managed funds.

Some examples to start your research might look like the following.

Equities

Accumulators might use broad-based coverage of the market, while those in retirement phase using their SMSF might look at equity-income focused options.

• Global X Australia 300 ETF (ASX: A300) which offers broad market-cap based exposure to the largest Australian companies.
• Vanguard MSCI International ETF (ASX: VGS) which tracks over 1000 large companies in developed countries (other than Australia).

For an income tilt for retirees:

• Betashares Australian Dividend Harvester Fund (managed fund) (ASX: HVST) which offers monthly income from investing in dividend yielding Australian shares
• Plato Australian Shares Income Fund which targets franking credits and dividend yield for retirees and zero tax investors – it is a managed fund with a minimum investment requirement.
• SPDR S&P Global Dividend ETF (ASX: WDIV) which tracks the Global Dividend Aristocrats Index in Australian dollars.

Fixed income

• Vanguard Australian Fixed Interest ETF (ASX: VAF) which invests across Australian government and corporate bonds.

• Global X US Treasury Bond (Currency Hedged) ETF (ASX: USTB) which invests in US Treasury bonds.

• JPMorgan Global Bond Active ETF (Managed Fund) (CBOE: JPGB) which invests across global government and corporate bonds.

Property

When it comes to property, you can invest in listed property – REITs, or you may choose actively managed funds that invest in developing or managing specific sites. Be aware that some funds that manage a portfolio of properties might only be available to wholesale investors or have large minimum investments and fees.

Some examples which invest in REITs include:

• Vanguard Australian Property Securities ETF (ASX: VAP) which invests in Australian listed REITs.
• VanEck FTSE International Property (AUD Hedged) ETF (ASX: REIT) which invests in global listed REITs.
• Resolution Capital Global Property Securities Active ETF (ASX: RCAP) which is an actively managed option investing in listed global REITs.

Some active funds which may invest directly in property, such as through developing specific sites include:

• Charter Hall Direct Long WALE Fund (LWF) which has a portfolio of properties across countries and sectors.
• Trilogy Industrial Property Trust which has a portfolio of Australian industrial real estate and aims to deliver monthly income.

Infrastructure

It’s worth noting that sometimes your infrastructure allocation can be covered off in your equities allocation. After all, companies like Australia’s Transurban and Spain’s Ferrovial will be found in large-cap index investments.

Otherwise, you can consider specific infrastructure tilts. Some examples are:

• Vanguard Global Infrastructure ETF (ASX: VBLD) which invests in core infrastructure in developed countries.
• Clearbridge Global Infrastructure Value Fund Active ETF (ASX: CUIV) which invests in listed global infrastructure. It is actively managed and aims to offer regular income.

Alternatives

Alternatives is a very broad field, so take the time to understand exactly what alternatives you might want here. Gold is often a commonly used defensive exposure in this asset class noting that commodities fall within alternatives, while you may also consider private markets, hedge funds and collectibles too.

You can find commodities like gold in listed format, for example, Global X Physical Gold (ASX: GOLD) but it can be harder to find passive options for alternatives like private markets where you may need to consider actively managed strategies. Due to the complexity involved with many alternative investments, you may find the management fees are higher and there can also be performance fees on top of this.

Some examples of actively managed alternatives funds include:

• QVG Long Short Fund which is an Australian hedge fund
• Pengana Private Equity Trust (ASX: PE1) which invests in global private equity managers
• Remara Credit Opportunities Fund which invests in credit loans that are backed by real assets.

Cash

You may choose to have cash sitting in the bank account for your SMSF, or some investors also use managed funds and term deposits to access further interest growth on their deposits. Remember that the cash section of your portfolio typically needs to be highly liquid so factor that in if you use term deposits or managed funds.

Some listed options for cash managed funds include:

• Betashares Australian High Interest Cash ETF (ASX: AAA)
• iShares Core Cash ETF (ASX: BILL)

Filling your SMSF with Managed Funds and ETFs

Once you’ve selected the funds you’ll be using in your portfolio, you’ll need to invest via your SMSF – this might mean filling out forms in the name of your SMSF Trust, or it could be a trading account registered to your SMSF.

While managed funds and ETFs can take some of the pressure off compared with directly investing in shares and the like, it still requires active involvement and review. As part of your regular SMSF reviews, you should be looking at the funds you hold and whether they continue to meet your strategy or not. Don’t forget to consider peer reviews and regularly assess fees as part of your review.

There is a vast universe of fund options out there, so there’s no quick grab, set and forget when it comes to any portfolio, let alone an SMSF. Using an expert like a financial adviser can help you navigate the range of options out there and ensure your strategy continues to meet the needs of all the members of your SMSF.

Holding an SMSF is about tailoring your portfolio to your retirement goals and needs (and that of other members). Using managed funds and ETFs can be just as effective in achieving this, even though many SMSFs are set up with the intent of using direct shares. Don’t forget that using one option doesn’t exclude you from using others – you can blend your investments if that’s the right choice for your SMSF and meets your strategy and requirements.

Funds Mentioned

Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.