Most popular shares in SMSFs

As of June 2024, there are 625,609 active self-managed super funds (SMSFs) in Australia showing a 4.5% increase on the prior year. This is the largest increase on record.  

Source: Class 2024 Annual Benchmark Report. September 2024.  

The largest funds (>$10m) have higher concentrations allocated to unlisted trusts, listed shares and non-residential real property.  Funds with less assets tend to concentrate on cash and term deposits as well as listed shares.  

The below table outlines the top 20 ASX investment holdings. 

Source: Class 2024 Annual Benchmark Report. September 2024.  

The top three most popular names - BHP, Woodside WDS and Westpac WBC remain unchanged from the previous year with similar percentages of accounts holding these stocks in their portfolios in FY24 as in FY23. Notably Ramsay Healthcare RHC, which held 20th position last year, dropped out of the list.

I’ve identified three of the most popular domestic equity holdings in a variety of sectors and which Morningstar analysts believe are undervalued.

Woodside Energy Group Ltd WDS ★★★★★

• Sector: Energy
• Fair Value: $45.00
• Moat Rating: None
• Last Price: $24.90 (as at 15th October 2024)
• Price to Fair Value: 0.55 (Undervalued)

Australia’s premier oil and gas player Woodside finished down 7% over September whilst the broader ASX200 gained 2.2%. Spending another month in the red, the company is down 30% over the last 12 months.

For LNG-leveraged Australian producers like Woodside and Santos, strong liquified natural gas (“LNG”) demand growth of more than 50% is expected by mid-next decade. Woodside remains one of our top energy picks with meaningful development underway. While net production growth is less than for Santos, the increase is still material for returns given capital efficiency.

Morningstar expects returns on invested capital to improve after 2026 and exceed weighted average cost of capital before the decade’s end. Woodside’s balance sheet is conservatively geared to support a strong 80% dividend payout ratio and a fully franked yield, despite ongoing capital expenditure.

Potential catalysts for material price movement towards fair value include the successful commissioning of Pluto T2/Scarborough which is 67% complete and on track for first cargoes in 2026. Our outlook for natural gas during the energy transition remains optimistic. With a high-quality asset base and geographical advantages, we believe Woodside is well positioned to meet growing LNG demand.

ResMed Inc RMD ★★★★

• Sector: Healthcare
• Fair Value: $40.50
• Moat Rating: Narrow
• Last Price: $35.89 (as at 15th October 2024)
• Price to Fair Value: 0.89 (Undervalued)

ResMed are a pioneer of digital health technology and cloud-connected medical devices for people with sleep apnoea, COPD and other chronic illnesses. Up 53% in the last 12 months, we believe there is still additional room for price growth before it closes the fair value gap at $40.50.

Strong device sales may have been driven by primary competitor Philips, demise after being hammered by remediation work. Additional tailwinds such as sleep apnoea diagnosis rates recovering and supply constraints easing have also bolstered sales.

Group Underlying earnings before interest and taxes (“EBIT”) increased 2% sequentially in the June quarter of 2024, largely reflecting strong mask sales and solid profitability being maintained.

Recent share price weakness has been driven by concerns of weight-loss drugs disrupting the industry. However, we believe that widespread adoption of these drugs will take some time, given their higher cost, limited supply and risk of side effects. Moreover, obesity is just one risk factor for sleep apnoea patience.

We believe the long-term growth opportunity for respiratory homecare devices is sizable as both developed and emerging markets are still significantly underpenetrated

Endeavour Group EDV ★★★★

• Sector: Consumer Defensive
• Fair Value: $6.10
• Moat Rating: Wide
• Last Price: $4.92 (as at 15th October 2024)
• Price to Fair Value: 0.81 (Undervalued)

Endeavour Group Limited operates retail drinks network and the portfolio of licensed hospitality venues in Australia. It also owns bottling facilities and wineries as part of its products and services capabilities.

Shares have stayed flat in the last month with the price down 6% overall across the previous 12 months. Morningstar analyst Johannes Faul believes Endeavour shares trade at an attractive valuation and fully franked yield.

The wide-moat company’s fiscal 2024 results were in line with our expectations with net profit after tax beating our estimates by merely 1%. The group successfully navigated elevated cost inflation, including mid-single digit rises in hourly wages with EBIT margins remained steady at 8.6%.

As consumers continue to curtail nonessential spending, we think the market underappreciates the defensive long-term earnings outlook. However, significant interest rate cuts by the Reserve Bank could boost household budgets in fiscal 2025.

We forecast Endeavour’s industry leading operating profit margins to be maintainable and higher because of the group’s greater operating leverage and sales productivity. It’s core liquor retailing segment commands about half of its addressable market with eminent Dan Murphy’s and BWS chains who we believe will grow in line with the market.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.