Can I buy US Stocks in my SMSF?

An SMSF can definitely invest in US stocks for broader diversification into the largest financial market in the world as the ATO rules have no problems with foreign asset exposure. This blog is focussed on public markets, investing in unlisted (private) US companies which are not listed on exchanges such as the NYSE is possible but more complex and not covered here.

Similar to any other SMSF investment an SMSF trustee has to consider the following themselves:

• risk & return
• diversity
• cashflow
• the fund’s investment strategy
• does the fund’s trust deed allow investment in US shares
• the investment must be made to provide retirement benefits to SMSF members

Other risks which are more specific to US investments include:

• fluctuating US foreign exchange rates
• understanding the tax implications of US corporate actions
• US tax system does not have franking credits like Australia so the tax consequences are difference
• the US government may impose a 15% withholding tax on dividends which may be claimed back when the fund lodges it’s annual return subject to some limits
• US government requires an SMSF to complete a W-8BEN-E form which is a requirement for investors outside of the US wanting to buy US shares to avoid 30% withholding tax on dividends and sale of US shares – however, 15% withholding tax may apply to US company dividends

How can my SMSF invest in US listed shares?

An SMSF can set up an account with an Australian broker or platform offering access to US stock exchanges such as the New York Stock Exchange (NYSE) and NASDAQ. The fund will need to deposit cash to the account which is then converted into US currency.

There are many ways an SMSF can invest in US listed shares directly including:

• using a broker or financial planner
• all four major Australian banks and Macquarie bank allow an SMSF to use their brokerage platforms to acquire US shares such as:
  • Commsec via CBA CDIA accounts
  • Bell Direct via Macquarie accounts
  • NABtrade via National Australia bank
  • Westpac Share Trading via Westpac bank
  • CMC markets invest via Australia and New Zealand banking group
• other trading platforms include:
  • Selfwealth
  • IG share trading
  • Interactive brokers

Brokerage costs, foreign exchange fees, inactivity fees and subscription fees are important considerations. It’s also important that brokers and platforms offer integration with specialised SMSF software for electronic transaction uploads for accounting purposes and also satisfy SMSF auditors as third party independent verification of ownership, valuation, existence, title of fund assets and overview to ensure no prohibited related party or unusual transactions.

Can my SMSF use Exchange Traded Funds (ETFs) to invest in US Shares?

Yes, an SMSF can invest in US companies such as the tech greats Apple, Microsoft and Google and other top US companies such as Alphabet, Mastercard and McDonald’s Corporation using an ETF.

What is an ETF?

An ETF is a type of managed fund which is publicly traded or available on stock exchanges like the Australian Securities Exchange (ASX), New York Stock Exchange (NYSE), or NASDAQ. Unlike owning shares in just one company, ETF investments include those that track indices, commodities, sectors or baskets of assets.

ETFs make it simple and affordable for an SMSF to invest in US stocks. However, ETFs are considered as volatile investments as ETFs can be affected by swings in the broader marketplace resulting in large losses.

Examples of ETFs which include extensive US exposure:

• iShares S&P 500 ETF (ASX:IVV) – tracks the S&P 500 index which is the 500 largest US companies by market capitalisation
• BetaShares Nasdaq 100 ETF (NDQ) – tracks the Nasdaq index including the 100 largest traded companies in the US
• QUAL – VanEck MSCI International Quality ETF -tracks the MSCI World ex Australia Quality index
• Vanguard US Total Market Shares ETF (VTS) -tracks all of the US publicly traded companies

Hint – ETFs which track indices do so by mirroring the performance of various benchmarks such as the S&P 500, the Nasdaq composite index and the Dow Jones Industrial Average i.e. an ETF can hold a collection of company stocks representing a broad market range such as the S&P 500 or a more specific range of companies focused on particular industries or sectors.

Will the administration cost of my SMSF go up?

Investing in US listed shares, listed ETFs or managed funds are not considered complex or unusual. SMSF Australia charges $1,300 plus GST for the annual accounting, audit and tax return of funds with international or domestic shares.