Some More Super Options

Two more Super Fund options I've come across recently.

Firstly, for those who want Vanguard funds but don't need to 'customise', there's Bendigo SmartStart Super.

Bendigo and Adelaide Bank's offerings have asset allocation managed by Sandhurst Trustees.  But the underlying investments for their diversified index fund offerings (i.e. in Shares, Property, Fixed Interest, but not Cash) are managed by Vanguard.

The particular funds of interest are:  Bendigo Defensive Index Fund, Bendigo Conservative Index Fund, Bendigo Balanced Index Fund, Bendigo Growth Index Fund, and the Bendigo High Growth Index Fund. They also have actively managed funds with higher fees.

There's a base fee of $98 per annum so, like most industry funds, they're not cost effective if you have a very small balance.  The MER (Investment Fee) ranges from 0.39% - 0.46%.  This is less than the ANZ equivalent, albeit with less flexibility to customise the allocation (the most you can do is mix-and-match to get an 'in-between' allocation).  There are no Withdrawal or Switch fees but there is a buy-sell spread of 0.20-0.25% to recover transaction costs.  The 'Neutral' asset allocation is listed along with the MER below:

	Defensive	Conservative	Balanced	Growth	High Growth	Cash
MER (Investment Fee)	0.39%	0.41%	0.43%	0.45%	0.46%	0.40%
Australian shares	9%	20%	33%	42%	50%
International shares	7%	15%	20%	30%	37%
Property securities	4%	5%	7%	8%	10%
Australian fixed interest	30%	22%	17%	8%
International fixed interest	25%	18%	13%	7%
Cash	25%	20%	10%	5%	3%	100%

Overall, for asset allocations around the 'Balanced' mark, they're probably not as good value as an Industry Fund.  Their 'Growth' and 'High Growth' fund are pretty good value for someone who wants a more aggressive allocation but wants it all in a single diversified fund.  If you're willing to set a similar allocation yourself, as I was, Sun Super is still lower-cost using State Street Global Advisors as underlying fund managers.

Another fund I've come across recently is potentially useful as a specialist option only.  In general their costs are not as low as most index funds.  However Hesta are the only fund I've come across which offers Unlisted Infrastructure at a reasonable fee.  They have a $65 + 0.08% administration fee and the Infrastructure option has a an Investment Fee of 0.77% (so total 0.85%).  The option holds 5-15% cash, presumably to ensure it stays sufficiently liquid.

I wouldn't use this as the core of my superannuation, as it's not as diversified or low-cost as shares, but I can imagine once I have a large enough balance that having a percentage in the Industry Funds' Infrastructure pool might be desirable.  This is an asset I typically would have limited access to, even through a Self-Managed Fund. For example, if I had a total portfolio of $500,000 and wanted ~8% ($40,000) in Infrastructure then the fees ($65 + 0.85%) would be around 1%.  Too high for the bulk of my funds but perhaps useful for additional diversification.

Hopefully it (or a similar new option) is still around in, say, 10 years once I have a sufficient portfolio to justify such an investment. One other thing to note is that they don't allow this separately in their Pension product so it may only be efficient prior to retirement.

Links:
Bendigo SmartStart Super

Bendigo SmartStart Super Fees (see page 14)
Hesta
Hesta PDS (see page 8 for administration fees)
Hesta Investments/Investment Fees (see page 19 for Infrastructure)

Index Managed Funds and ETFs outside Superannuation

I've been asked recently about Vanguard and other index managed funds outside super so decided to collect my thoughts.  In principle this should also be applicable to self-managed superannuation funds, although the tax implications will be different.  This post will be focused on products available in Australia more than general strategy (keep in mind that process is often more important than product: saving 0.1% in fees is no help if your strategy is one that you find too stressful and can't maintain).

There are two main investment vehicles that can easily be used for index investing in shares.  The more traditional managed funds are purchased by applying to the fund manager.  Minimum investments vary - Vanguard and Colonial First State have a $5,000 minimum.  However both offer regular investment investment plans from $100 per month which can be particularly useful when starting investing.  There are still 'trading' costs in the buy-sell spread (of the order of 0.1-0.3%) so it's still probably worth sticking with a product for a number of years (if moving investments around regularly those costs will mount up).   Canadian couch potato points out that when our balance is small, our contributions will have much more impact than investment returns. So having investments that allow for easy regular contributions at a reasonable cost may indeed be a better option than targeting the lowest annual fees (through ETFs) when your balance is low (particularly given brokerage costs).

An Exchange Traded Fund (ETF) is basically a managed fund which trades like a share on the ASX. Typically ETFs have lower ongoing management costs than an equivalent standard managed fund but you do need to pay brokerage to purchase them, just like a share.  The ETFs that align with the investment approach I've been talking about are again Index Funds.  Index ETFs typically trade very close to their Net Asset Value (NAV), the price of the underlying shares or bonds in the index.

Exchange Traded Funds (ETFs) have been around for a while, slowly gaining in popularity in Australia since the launch of the ASX200 SPDR fund (STW) in August 2001.  iShares and Vanguard have increased the range of offerings substantially over the past few years.

For traditional 'unit trust' managed funds, Vanguard charge 0.9% p.a. for share-based and diversified index funds up to $50,000 (and 0.7-0.75% for cash and bond funds, although many would not choose to hold these or hedged international shares outside superannuation due to their relative tax inefficiency.  Edit 7/10/2013: Now down to 0.75% p.a. for Australian Shares also).  Some comparable (as well as a couple of extra) Colonial Wholesale investments are listed below (Note the Realindex and Multi-Index funds may not be as tax-efficient due to likely higher portfolio turnover and bond holdings respectively):

Fund	MER
Colonial First State Wholesale Index Australian Share	0.41%
Colonial First State Wholesale Index Australian Bond	0.41%
Colonial First State Wholesale Index Property Securities	0.41%
Colonial First State Wholesale Index Global Share	0.53%
Colonial First State Wholesale Index Global Share – Hedged	0.53%
Realindex Wholesale Australian Small Companies	0.86%
Realindex Wholesale Emerging Markets	0.94%
FirstChoice Wholesale Multi-Index Conservative	0.61%
FirstChoice Wholesale Multi-Index Diversified	0.65%
FirstChoice Wholesale Multi-Index Balanced	0.70%

ETFs will typically have lower fees still (but require brokerage to purchase).  Some 'core' ETFs that may be of interest for the sorts of portfolio strategies I've been discussing are tabulated below:

Australian Large-Cap Shares		MER
Vanguard® Australian Shares Index ETF	VAS	0.15%
SPDR® S&P®/ASX 200 Fund	STW	0.29%
iShares MSCI Australia 200	IOZ	0.19%

Overall Vanguard have the best-diversified ETFs that I can find with the lowest costs.  I would have used VAS myself except it didn't exist when I started investing in index funds.  Note that VAS covers closer to 300 stocks, rather than the ASX200.

Note that at least the Vanguard International funds below (and I think some of the iShares ones also) are cross-listed US funds. That's a big reason why they're so inexpensive but this means that there is some withholding tax from their distributions (that you can hopefully use as a tax offset at tax time) and there may be other tax implications for US residents.  The SPDR products are more expensive but do offer the US and the rest of the world in a single product, as well as a hedged currency version.

Global Large-Cap Shares		MER
SPDR® S&P® World ex Australia Fund	WXOZ	0.42%
SPDR® S&P® World ex Australia (Hedged) Fund	WXHG	0.48%
or approximately split into US/non-US
Vanguard® US Total Market Shares Index ETF	VTS	0.05%
Vanguard® All-World ex-US Shares Index ETF	VEU	0.15%
iShares Core S&P 500 ETF	IVV	0.07%
iShares MSCI EAFE ETF	IVE	0.34%

I'm personally wary of Australian Small-Cap without some control for 'value' due to the weighting towards smaller mining and mining services companies, but this may not be entirely rational

Australian Small-Cap Shares		MER
Vanguard® MSCI Australian Small Companies Index ETF	VSO	0.30%
SPDR® S&P®/ASX Small Ordinaries Fund	SSO	0.50%
iShares S&P/ASX Small Ordinaries	ISO	0.55%

Australian Listed Property		MER
Vanguard® Australian Property Securities Index ETF	VAP	0.25%
SPDR® S&P®/ASX 200 Listed Property Fund	SLF	0.40%

As mentioned above, Bonds may be more suitable to hold in Superannuation depending on your specific taxation circumstances

Australian Bonds		MER
Vanguard® Australian Fixed Interest Index ETF	VAF	0.20%
Vanguard® Australian Government Bond Index ETF	VGB	0.20%
iShares UBS Composite Bond	IAF	0.24%
iShares UBS Government Inflation	ILB	0.26%
iShares UBS Treasury	IGB	0.26%
SPDR® S&P®/ASX Australian Bond Fund	BOND	0.24%
SPDR® S&P®/ASX Australian Government Bond Fund	GOVT	0.22%
Russell Australian Government Bond ETF	RGB	0.24%
Russell Australian Semi-Government Bond ETF	RSM	0.26%
Russell Australian Select Corporate Bond ETF	RCB	0.28%

Those cover the major asset classes. While there are many other ETF options available, some more specialised ones that I am reviewing for my own use are below.  If the paragraph explaining below makes no sense, I'd skip these funds and stick to the major asset classes.

iShares: Small-Cap US and Emerging Markets		MER
iShares Core S&P Small-Cap ETF	IJR	0.17%
iShares Russell 2000 ETF	IRU	0.24%
iShares MSCI Emerging Markets ETF	IEM	0.69%

Value-Tilted and Fundamental Index Funds
BetaShares FTSE RAFI Australia 200 ETF	QOZ	0.30%
Russell Australia Value ETF	RVL	0.34%

These ETFs cover segments and 'tilt' that is often more challenging to find in low cost index funds and Superannuation in Australia. Unfortunately we don't yet have access to the breadth of products available in the US. If you have been reading about Asset Allocation you might have come across the "Three Factor Model".  You might also notice that there's very little in the way of International Small-Capitalisation exposure. While there aren't general International Small-Cap index ETFs available in Australia yet we can at least get access to US Small-Cap indices (both the S&P and the Russell 2000).  Similarly there aren't many options to get access to 'value' tilted index funds.  I'm not sure either the BetaShares or Russell fund are perfect from this perspective but they are at least low cost.  Note that the Russell fund only holds a subset of the ASX, so may experience more turnover (and hence distribute more capital gains when it comes to tax time) than a pure capitalisation-based index fund tracking the ASX200 or the entire Australian stock market.

As always, I appreciate any comments.  And if you've found other low-priced index funds available in Australia, let us know.

Discosure: the author has holdings in VTS, VEU, STW and RVL.

Links:
Vanguard ETFs
Vanguard Retail Managed Funds (<$500,000)
State Street Global Advisors ETFs
iShares ETFs
Colonial First State 'Wholesale Investments'
Tips for trading ETFs
Choosing between ETFs and traditional index funds
Vanguard paper on home bias

19/09/2013 Additional Note: Regarding the cross-listed US funds I recently emailed Vanguard about VEU "Vanguard® All-World ex-US Shares Index ETF".  The fund is US-listed but receives dividends from other countries.  Some of those countries apply their own withholding taxes.  I'm told US taxpayers are able to take these into account as tax credits but Australian resident taxpayers are only able to take into account the US withholding tax (so this shouldn't be a problem for VTS and other funds with US companies).  While the headline Management Expense Ratio is lower than most Australian domiciled funds with International Shares, some of that benefit may be lost by taxation.

A back of the envelope calculation I did for my own benefit: if we expect around 2% p.a. in dividends then at a withholding tax rate of 15% we'd lose 0.3% while with 30% withholding it would be 0.6%.  If this is half our International Shares exposure (with the other half in the US) then we're talking 0.15%-0.3% difference which is less or about the same as the fee difference (50% VTS/50% VEU would have an average MER of 0.10% while WXOZ has an MER of 0.42% for a 0.32% fee difference).  Depending on the dividend distribution it may even be that WXOZ has a slight edge at times when it comes to the combination of fees and taxes, albeit without quite the level of diversification offered by the two Vanguard funds.  I suggest professional advice be sought on the taxation implications if you have any concerns about tax treatment.

Asset Allocation Part 2

I have a confession to make.  I suffer from 'home bias'.  What is 'home bias'?  Read on:

In my last post I discussed asset allocation between 'growth' assets such as shares and 'defensive' assets such as cash.  This post is a tricky one, perhaps with no 'right' answer.  Let's say we've decided on an allocation to growth assets, be it 20% or 80%.  How will we then split that amongst different growth assets? Let's start with Shares from different countries and regions.

Back in the early days of finance theory some would have suggested we hold the global market proportionally.  This would mean holding approximately 2-4% in Australian shares.  Yet we see most balanced funds have somewhere between 50-75% of the growth assets in Australian shares and property.

There are a few reasons I think this is the case, some of them good reasons for this 'home bias'.  I won't go into finance theory but will focus more on the practical reasons:

• Australian residents (and our super funds) are usually eligible for franking credits from dividends.  In our superannuation funds this will often reduce the overall tax paid on earnings of the fund and so increase after-tax returns
• Currency fluctuations can also impact international share returns in Australian dollars.  However in an international fund hedged to the Australian dollar, imperfect currency hedging can be a drag on returns (and lead to increased tracking error: make it more difficult for a manager to track their index)
• Australians may just be more comfortable with local shares, making a 'home bias' more marketable

Having some international exposure is likely to be beneficial over the long term.  The key reason is diversification - when they're not perfectly correlated (don't always move together in the same direction) diversification of volatile assets with similar expected returns can actually lead to higher returns with lower risk.  For more on the conceptual details of this I strongly recommend reading one of the books below by William J. Bernstein.

Unfortunately we can't know ahead of time which combination of assets will perform best over the next year, 5 years, 10 years, or 30 years.  So some criteria I see as important are:

• Having a sufficiently diversified portfolio to smooth possible outcomes
• Having a portfolio containing a balance of assets which still allow you to sleep at night!

The latter criteria may not seem entirely rational.  My key point with it is that making constant changes to your asset allocation (for example purposely lowering your allocation to US shares when they're doing badly relative to Australian shares, say) is paradoxically a good way to lose money (as we're selling low and buying high).  And if you're not comfortable with, say, more than 50% international shares it greatly reduces the chances of 'staying the course' during the inevitable ups and downs.

Personally, I'm now comfortable with somewhere around the range 35-50% of my share allocation in international shares and 50-65% in Australian shares.  This may or may not be optimal but is a plan I can handle and will hopefully give me sufficient diversification over the years.  What are your thoughts on asset allocation - have you been able to overcome 'home bias'?

Links:
Vanguard paper on home bias
I'd greatly appreciate any comments with good guides to asset allocation in Australia. I haven't found an Australian book that comes close to the William Bernstein books below:

The Four Pillars of Investing: Lessons for Building a Winning Portfolio

The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

I'm currently reading The MoneySense Guide to the Perfect Portfolio.  It's a very short book, costs $4.99USD on Kindle/iPad and provides a nice first introduction to Asset Allocation with index funds.  While the Bernstein books above are written from a US perspective, this one is Canada-focused.  So the specific products are different (e.g. we have Super, not RRSPs) but many of the challenges are similar: Asset Allocation in a country with a relatively small, undiversified local stock market (skewed towards Financial and Commodity stocks)

If you'd like to see how different combinations of assets have performed over the last 40 years, Vanguard have a calculator.  While past performance need not be reflected in future performance it's some comfort to know that over reasonable time periods there hasn't been so much difference between 55%/45% Australian/International shares and 65%/35% Australian/International shares.
Rick Ferri also points out that getting close to the right asset allocation is usually best, rather than worrying down to that last 3%

Why I can't recommend Vanguard for Australian Superannuation (yet)

I've been asked a couple of times about using Vanguard as a core provider of retirement investments. Almost everything you read on the Internet on index funds will quite reasonably mention Vanguard, the originators of index funds.  However most of these articles are focused on US investors and US products.

Vanguard are a great company with some great products.  So why don't I think they're suitable for many Australian investors as the core of their Superannuation?

Unfortunately their lowest-cost funds are only available in self-managed superannuation funds, direct investment options like ING Living Super and some wrap accounts.  ING Living Super comes with additional fees for ETF investment and restricts customers to 20% within a single exchange traded fund, so a Vanguard ETF-focused asset allocation is quite restricted in terms of options (although mixing with iShares and other index ETFs makes this a viable strategy).  Self managed superannuation funds and wrap accounts do not have this limitation but tend to be quite costly unless you have a larger account balance.

The largest drivers of recommendations of Vanguard elsewhere are their wide diversification and low costs. In Superannuation in Australia there are similarly diversified index funds at substantially lower cost. So until Vanguard are able to offer better pricing over here, the only Vanguard products I'll be purchasing from them are their ETFs (in my case, outside of Super). If my balance was large enough I might include some of those ETFs in my super to complement other index funds with their low fees. But looking at the alternatives, their retail ("unit trust") managed funds just aren't price-competitive over here.

Links:
ING Living Super: ETFs
Vanguard ETFs
Vanguard Retail Managed Funds (<$500,000)

Asset Allocation Part 1

Somewhere between 40% and 100% of a fund's return is determined by Asset Allocation.  The key thing, though, is asset allocation is actually something we can control: we can't control whether the Australian share market will go up or down over the next year, we can't control if a particular manager will underperform or outperform an index.  What we can control is asset allocation.

Asset allocation is simply the proportion of assets we allocate to different investments.  At a high level this can be the split between growth assets (such as shares) and more defensive assets (such as cash).  At a detailed level we can think about how much of our share allocation we want to allocate to Australian shares vs. international shares, or even more granular such as separating our allocation to emerging market country shares against more developed nations.

Today I'm going to link to some of the sources that have helped me think about asset allocation and start by discussing the high-level split between growth and defensive assets.

Larry Swedroe has some advice on high-level Asset Allocation in his book The Only Guide You'll Ever Need for the Right Financial Plan.  Some of the tables are reproduced in a blog post by Canadian Couch Potato

I'd recommend checking out the post (or the book).  The key message is to take risk based on your "ability, willingness and need to take risk".  Ability to take risk has a lot to do with timeframe: if you have a stable income, are saving for retirement and aren't planning to retire for another 25 years you have a greater ability to take risk than someone already in retirement.  This is often what is taken into account when prescriptions such as 'your age in bonds' are made.

The willingness and need to take risk are sometimes neglected in this analysis.  For example, on the willingness to take risk, if the possibility of a 40% or 50% short-term loss will prevent you sleeping at night then a 90% or 100% asset allocation to shares is probably unwise (if nothing else because there's a chance of panic in the face of a loss, leading to selling when the market is at a low).  On the need to take risk, if you already have enough savings to last your lifetime then you can afford to take a more conservative allocation even if relatively young.  If your long-term goals require a higher return then a more aggressive allocation may be required to reach those goals.

There are some interesting approaches based on these principles.  Rick Ferri proposes starting with a reasonably conservative asset allocation when young, until you become better informed and more experienced with your degree of comfort with the ups and (more importantly the) downs of the share market. William Bernstein's short book The Ages of the Investor (a more challenging read) is in-line with this when younger.  For retirement, he focuses on having enough to cover 20-25 years worth of your usual living expenses (over and above that provided by any pension you are eligible for) in a low-risk "liability matching portfolio" and once you have "enough", your remaining assets in a "Risk Portfolio".

Some more useful sources of information include my favourite books on Asset Allocation, by William J. Bernstein:
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

Other links (which I may continue to add as I think of them):

Bogleheads wiki on Asset Allocation
Rick Ferri points out that getting close to the right asset allocation is usually best, rather than worrying down to that last 3%

The best deals in Superannuation in Australia Part 3

The KISS Principle: Keep It Simple, Super(annuation)Freak

Amongst my dozens (and dozens) of readers, not everyone wants to worry about the details of asset allocation or have to keep an eye on multiple funds.  I completely understand if you want to find a fund that you can leave for a decade and only revisit as your life situation and closeness to retirement changes substantially.  Your particular choice of fund may also depend on other factors such as the availability (and relative price) of insurance connected with the fund.

In this post I'll compare the diversified index fund offerings amongst the funds we've already looked at.  These funds target a particular asset allocation between Australian Shares, Fixed Interest (Bonds), etc, and allocate across different index products for you to achieve that target.  I'll split the funds between the most conservative funds (30% or less in the growth assets of Australian Shares, International Shares, and Property & Infrastructure), the less conservative that have an asset allocation closer to the typical Australian balanced superannuation fund (62-75% in growth assets) and those in between (50% in growth assets).  Typically the more growth oriented, less conservative funds are expected to experience higher long-term growth but also higher year-on-year volatility, so these may be less suitable if you only have a few years until retirement.

The different classes of funds are in the tables below.  I've ordered them by the best estimates available on Management Expense Ratio (MER), a % management fee charged on the assets you have in the fund.  Ideally we want to keep administration and management fees to a minimum while still being able to achieve our retirement objectives.

'Conservative' Funds:

ANZ: ANZ Smart Choice Super: Conservative
Colonial: FirstChoice Wholesale Multi-Index Conservative

'Moderate' Funds:

ING: ING Direct Living Super 'Smart' Option
ANZ: ANZ Smart Choice Super: Moderate
Colonial: FirstChoice Wholesale Multi-Index Diversified

'Balanced' or more 'Growth' oriented Funds:

¹Includes credit reduction 0.09% for Operating Risk Reserve for FYs 2013-2016

²Includes admin fee 0.05%

*Unspecified distribution between Australian and Global Fixed Interest

Aust: AustralianSuper Indexed Diversified
HostPlus: HostPlus Indexed Balanced
SunSuper: SunSuper Balanced - Index
ANZ: ANZ Smart Choice Super: Growth
Colonial: FirstChoice Wholesale Multi-Index Balanced

Another option available are the ANZ Smart Choice Super 'Lifecycle' investment options.  These are arranged by decade of birth.  These gradually decrease the allocation to relatively volatile growth assets as time passes (so the allocations will change, e.g. the 1980s likely becoming more like the current 1970s allocation over the next decade).  My concern with these is that they will adjust in a completely set fashion, not taking into account our individual circumstances.  For example, if you find that your retirement savings reach your goal level much earlier than retirement (you have 'enough') then you may wish to reduce your level of growth assets earlier to emphasise preservation of assets.  You may equally be willing to take greater risks while older (and/or work longer) if you have not yet achieved your desired retirement savings level.  I include them for your information nonetheless:

Whether you want to take more detailed control of your super, or just want a fund you can let do the work for you, I hope this series has shown that there are index funds available in Superannuation in Australia that can help you achieve your retirement goals at a low cost.

Added: Links to Superannuation funds (and their fees):

SunSuper
AustralianSuper
HostPlus
ING Direct Living Super
ANZ Smart Choice Super
Colonial First State FirstChoice Wholesale Personal Super

The best deals in Superannuation in Australia Part 2

In my last post I wrote generally about some of the low-cost providers of index funds within Superannuation available in Australia.  Today's post is for those who want more control over their investment options without the cost and administrative burden of a self-managed superannuation fund.

Specifically we'll be taking a look at AustralianSuper's MemberDirect option and ING Direct Living Super's Shares option.  Both of these options allow investment in individual companies on the Australian Stock Exchange (ASX) as well as a range of Exchange Traded Funds or Listed Investment Companies.

An Exchange Traded Fund (ETF) is basically a managed fund which trades like a share on the ASX. Typically ETFs have lower ongoing management costs than an equivalent standard managed fund but you do need to pay brokerage to purchase them, just like a share.  The ETFs that align with the investment approach I've been talking about are again Index Funds.  A Listed Investment Company (LIC) is typically more like an Actively Managed fund rather than an Index Fund, however there are some low-fee Listed Investment Companies and there may be a LIC which provides access to assets or an investment style not easily available in (Index) ETFs.  Index ETFs typically trade very close to their Net Asset Value (NAV), the price of the underlying shares or bonds in the index.  Listed Investment Companies may trade below or above the NAV depending on the market perception of the value added (or subtracted) by their management (needless to say, the evidence on active management is not in its favour).  Some ETFs and LICs target physical or synthetic exposure to commodities or currencies; As these are not income generating I personally do not see their value as an investment (I do notice neither AustralianSuper nor ING seem to include synthetic commodity ETFs within their options at time of writing: I personally would be concerned with synthetic ETFs about the additional counterparty risk embedded in such products).

What are ETFs useful for?

We've seen that a number of funds already have low-cost access to basic asset classes through index funds: Australian and (Broad) International Shares, Bonds, Property, Cash.  So the primary purpose of ETFs in an index-fund-based portfolio is diversify into or 'tilt' towards specific types of assets that may not be well-represented by the broad asset classes, or to lower costs further where this is possible.

To make this more tangible, some specific examples that are available include:
Exposure to Small Company Shares (in Australia or the US)
Exposure to specific Country or Region Shares (US, Europe, Specific Asian Countries)
General exposure to Emerging Markets or 'BRIC' Countries

In addition, the cost of some 'core' components of a portfolio may be lower in some cases, particularly
ASX200/ASX300 Australian Shares
US Total Market/S&P 500 Shares
All-World Ex-US Shares

What ETFs are available?

ING Direct have the largest range of available ETFs between the two products: ING ETFs

Particular ETFs available which I find attractive (but may not suit your particular situation) include:

		MER (fees)
Vanguard® Australian Shares Index ETF	VAS	0.15%
Vanguard® US Total Market Shares Index ETF	VTS	0.05%
Vanguard® All-World ex-US Shares Index ETF	VEU	0.15%
Vanguard® MSCI Australian Small Companies Index ETF	VSO	0.30%
iShares Russell 2000 ETF	IRU	0.23%
iShares Core S&P Small-Cap ETF	IJR	0.16%

These provide even lower ongoing costs for Australian and International broad share indices as well as relatively inexpensive access to small Australian and US companies.  The iShares MSCI Emerging Markets ETF (IEM) may also be appealing if one wants a higher exposure to Emerging Markets but comes at a relatively high Management Expense Ratio of 0.69%, unsurprising due to higher costs in general for investing in Emerging Markets.

AustralianSuper only currently provide access to iShares ETFs: iShares ETFs

Some examples which may be valuable include:

		MER (fees)
iShares MSCI Australia 200	IOZ	0.19%
iShares Core S&P 500 ETF	IVV	0.07%
iShares MSCI EAFE ETF	IVE	0.34%
iShares S&P/ASX Small Ordinaries	ISO	0.55%
iShares Russell 2000 ETF	IRU	0.23%
iShares Core S&P Small-Cap ETF	IJR	0.16%

Outside of the US small-cap segment, in particular for the broad Australian and International share indices these do not seem to provide as good value as the Vanguard funds available in the ING product.  In particular, the Small Australian Companies fund seems fairly expensive at 0.55%.  The same Emerging Markets fund is also available in AustralianSuper.

How Much Extra Does it Cost?

On top of the Management Expenses of the investments themselves, both ING Direct and AustralianSuper have additional administration fees to access these options.  They both charge $180 p.a. as a basic fee.  For AustralianSuper this also provides access to term deposits (which are available fee-free with ING Direct).

Additionally, brokerage is payable to purchase ETFs (or ASX shares).  AustralianSuper have a sliding scale with a minimum of $15, then fees from 0.3% down to 0.12% for trades above $50,000.  ING charge a minimum of $20 or 0.13% per trade.  If not trading frequently, these fees are not vast but they may impede frequent portfolio rebalancing.  One other trading cost to keep in mind is that some of the ETFs are not traded as frequently on the ASX and, as a result, have relatively wide bid-ask spreads.  This means that the price you buy at may be a bit higher than the underlying value, and the price you sell at a bit lower.  It's definitely worth keeping an eye on the bid-offer spread when making these trades and consider if the cost is worth it for the objective of the particular ETF investment.

What limitations are there?

Both products limit the extent to which you can use these options and the extent to which you can concentrate your holdings within individual ETFs or shares.  The maximum in both cases is 80% of your total account balance in shares and ETFs, and 20% in a single share or ETF (although in the ING case that 20% may not be a strong constraint, for example you can combine a Vanguard ETF and a very similar iShares ETF).  Both require a minimum total balance of $10,000 and also require a small amount be kept in a low interest transaction account to cover fees.  AustralianSuper also requires a minimum balance of $5,000 in one of their own funds (some of which are good value nonetheless, as highlighted in part 1 of this series) and a minimum share or ETF buy order of $1,500.  In addition AustralianSuper MemberDirect is not currently available to Pension members, only during the 'accumulation phase'.

I'm not an accountant and the tax treatment of capital gains for your shares and ETFs is somewhat unclear to me.  Superannuation has the advantage of a 15% tax rate on capital gains (10% if held more than a year) and this certainly applies here.  In a standard superannuation managed fund, the fund is marked-to-market (its current value is calculated) and my understanding is capital gains are distributed to holders of the fund as units are bought and sold.  If I'm reading the AustralianSuper Member Guide correctly, it looks like capital gains are provisioned quarterly based on the gains and losses rather than on sale of your shares/ETFs.  I haven't been able to find the detail on the ING CGT treatment.  One advantage of a self-managed superannuation fund over these products may be that you can hang onto a share and only pay capital gains tax (or harvest capital losses) when you dispose of the shares.  I'd greatly appreciate any feedback on the tax situation from readers more knowledgeable in this area.

Conclusion

Overall AustralianSuper MemberDirect and the ING Living Super Shares Option can be valuable for either diversification into specific asset classes or reduction of fees on larger balances.  These have the potential for lower fees and administrative burden than a self-managed superannuation fund but are not without some limitations.  For the purposes of ETFs, the ING offering does provide broader options.  The AustralianSuper offering is probably best suited as a complementary investment for those who currently (or wish to) hold assets in AustralianSuper's other funds.

Other Superannuation funds are beginning to offer similar options, albeit less well-established and typically with fewer ETF options.  It will be interesting to see how the marketplace evolves and the extent to which funds compete for those who want greater control over their super.

As always, feedback from readers is greatly appreciated.

Links:

AustralianSuper MemberDirect

ING Living Super Shares Option and List of ETFs

Additional Note: ING do not appear to offer comprehensive ASX 200 ETFs in their direct investment option any longer.  This may reduce the usefulness of the option to some (while there are still similar options such as ASX 50 or high dividend yield index funds, or low-fee LICs such as AFI and ARG none of these are as well-diversified as the Vanguard® Australian Shares Index ETF)