Direct share ownership in Australia
According to the ASX, in 2014 36% of the adult Australian population owned investments listed on the ASX. This does not include investments made through managed superannuation funds (although it does include investments made through self-managed superannuation funds). This is the rate of Australians who deliberately (rather than automatically through super) invest in shares.
This is one of the highest rates of direct share investment in the world.
That 36% breaks down into 3% of people who only hold investments indirectly via a managed fund, 7% of people who hold both direct and indirect investments, and 26% of people whose share market investment is completely direct. (The ASX defines direct share investment as an investment in a listed entity held either in a person’s name or within some controlled entity such as a company or a SMSF.)
Interestingly, this rate of direct ownership represents a reduction from previous years. Direct share ownership peaked around 2004 at a level above 40%.
The contrast between share market investors who invest directly and those that invest via a management vehicle is substantial: of those who invest in shares, over 72% do so without any fund manager involvement and a further 19% do so in conjunction with some form of managed fund. Looked at another way, of those adult Australians who deliberately invest into the share market, less than 10% do so solely through the medium of a fund manager.
Australian investors overwhelmingly prefer direct share investment. For advisers, this should be a telling statistic: advisers who can assist clients with direct share investment can thereby assist a much larger proportion of the investing public than advisers who focus solely on managed funds.
Unsurprisingly, the rate of direct share ownership rises through the thirties to reach a peak of 46% of Australians aged over 75. While this could this mean that owning shares makes people live longer, we will not go that far at this stage!
The rate of direct share ownership also increases with post-secondary education: only 25% of people who have completed year 12 own shares, compared to 51% of people who hold a post-graduate degree.
In what is almost certainly a related observation, the rate of direct share ownership also increases with household income. While 34% of people with household income between $50,000 and $70,000 a year hold direct investments (which seems still to be a large figure), 51% of households with annual income greater than $200,000 do so.
Reflecting the fact that Australia is a highly urbanised country (64% of Australians live in capital cities, with a further 26% living in non-capital cities), the rate of share ownership for residents of capital cities is the same as that for the whole country: 36%. However, the rate of direct ownership for people living in regional areas falls to 27%.
How people buy and sell shares
In 2014, 55% of retail investors made their investments via a non-advice mechanism such as ETrade or Commsec. 16% of people invested following advice from their financial planner, 15% used a full-service broker and 6% used a wealth management adviser.
The main source of information for investors was the internet or social media, being used by 50% of direct investors. Interestingly, 19% of direct investors made use of a subscription service.
Gender and direct share ownership
All is not equal when it comes to share ownership. While 38% of adult Australian males directly own investments on the ASX, only 27% of adult females do so. Unfortunately, it is difficult to ‘drill down’ more sensitively into the data on gender and share ownership, but it is likely that the reasons for the lower rates of share ownership for women are the same as the reasons for the lowered rates of home ownership for women, which are discussed here. These reasons boil down to two things: women earn less than men and women are more likely than men to need to finance the raising of children. (Albeit that many men are also frequently involved in this activity and that this also dampens their ability to purchase assets – the rate of direct share ownership is lowest in the 35-44 age bracket – precisely the age when most people are raising families).
Interestingly, there is evidence that women are actually better than men at share trading. Drawing on their own research, in 2008 two American researchers (Brad Barber and Terry Odean) concluded “that men trade more than women; the annual turnover rates of men are about 80%, while those of women are 50%… [and that] The excessive trading of men leads to poor returns.” This adds to various other forms of anecdotal evidence that suggest that the more cautious approach typically taken by women leads them to trade less and to invest more prudently – although the outperformance of women as investors may be somewhat nullified by the smaller amounts their caution or reduced investment capacity see them invest. So, while women may make a better rate of return, the absolute size of returns for men are larger because men earn their lowered rate of return on a larger investment base. That is, men invest more and so they earn more in dollar terms, while women invest less but earn more in percentage terms. For the individual investor, this means that it is better to be a woman than a man.
Perhaps even more interestingly, the Centre for Gender Economics analyses the gender composition of the boards of those companies who make up the ASX200. The analyses suggest that companies whose boards comprise at least 25% women outperform the index by 2% per annum. Somewhat more strikingly, the outperformance rises to 7% per annum when compared to boards that are male-only. That is, ASX200 companies with at least 25% female board representation earn double the rate of return of companies with male-only boards.
So, if an investor cannot be a woman, then they perhaps should at least invest in a company that is run by women.
To read further about the extent and type of direct share investment in Australia, please read the 2014 Australian Share Ownership Study published by the ASX.