The favourite stock of Australia’s growing army of self-managed super funds is…Telstra. SMSFs own 18% of Telstra’s market cap or $7.3 billion worth, which 2.5% of the $293 billion that “selfies” have allocated to Aussie equities.
The reason for Telstra’s popularity is not hard to find: it’s the 9% fully franked yield of course.
That data, and much more, comes from a study by Credit Suisse, based on Australian Tax Office material, as well as data from the SMSF software firm, Class Ltd (ASX:CL1).
“Selfies”, as Credit Suisse calls them, own about 17% of the ASX 200 and are dominant force in the Australian sharemarket.
Here’s a chart of their aggregate asset allocations from the ATO, showing that cash has fallen from 32 to 23% of portfolios as interest rates have come down:
And here are the main stocks they own, from Class Ltd:
I think four of the top five holdings are surprising. Telstra, for a start, is a risky bet that it will overcome the revenue loss from the NBN, and there are three resources stocks there as well, which is unusual for income investors, to say the least – although miners have turned themselves into income stocks these days.
It’s clear from the data that selfies are not momentum investors like most institutions – they are looking for big market cap stocks that offer big fully franked dividend yields to fund their retirement. This is hardly surprising.
Credit Suisse estimates that half of the assets in SMSFs are in pension phase, where they pay zero tax on capital gains and dividends. That means the gross dividend yield is also the net yield.
Institutional investors scoff at the idea of buying a stock purely for the dividend, but selfies are fine with it.
Credit Suisse estimates that over the past 18 months, selfies have underperformed their benchmark by 75 basis points (the benchmark includes dividends but not franking). “We estimate that (they) have provided some $700 million of alpha (improved performance) each quarter since March 2016.
“Some would be quick to suggest that selfies are the proverbial ‘patsy at the table’ of the Aussie equity market, but we disagree.
“Our previous discussion with selfies and their advisers suggest that they do not set out to beat the ASX 200 index. Rather they are looking for a solid, relatively low risk income stream that can help fund their retirement – their overweight position in high gross dividend yielding stocks makes perfect sense”.
Well, yes, up to a point Lord Copper. As long as the dividend is sustainable, and as long as you don’t mind possibly losing capital – and a lot of selfies don’t mind, as long as the dividend holds. The capital is for the kids, and they can look after themselves.
Credit Suisse’s key point is that two investment strategies are better than one – that is, if you can find stocks appeal to selfies looking for gross dividend yield, that also have earnings momentum and thus appeal to institutional investors looking for outperformance, you’ll be on a winner.
The firm has produced a list of such stocks: