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Only half of SMSFs own shares

The 2012 ASX Share Ownership Survey has been released today and makes for interesting reading.

Among other findings, just 52% of Self-Managed Super Funds (SMSFs) held shares directly in a company listed on the ASX, the same as 2008 and 2010. SMSFs reported an increase in residential property at 19%, up from 11% in 2010, and commercial property at 12%, up from 10% in 2010.

The number of SMSFs holding derivatives has fallen by 50% to just 2% since 2010, while investments in unlisted managed funds appears to have stabilised at around 16-17%, after dropping from 38% in 2008.

It might be interesting to speculate on why almost half of all self-managed super funds don’t invest directly in shares. Perhaps they have chosen to invest in other assets, such as cash, unlisted fixed income securities, bonds, property and most likely unlisted managed funds.

In the case of unlisted managed funds, SMSFs will be paying two lots of fees. One to administer their SMSF, and the normal fees charged by the unlisted managed funds. It would make more sense to dissolve the SMSF and invest directly in the unlisted managed fund. Even better, redeem the unlisted managed funds and invest directly in shares, thereby avoiding the double fees, and giving the investor a greater chance of outperforming the market.

Many unlisted managed funds benchmark themselves against an index, and as a result are likely to hold the majority of the largest stocks in the index.  That means holding stocks like Fortescue Metals Group (ASX: FMG) which has dropped 25% in the past 12 months, Newcrest Mining (ASX: NCM) which has lost 39% of its value and Rio Tinto (ASX: RIO), which is down 1.3%. Over the same period, the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained 27%.

Foolish takeaway

A simple index tracking exchange-traded fund (ETF) can provide similar results to the index, with much lower fees. Even better would be an investment in high quality ASX shares, with good growth potential, paying a decent dividend.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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