Experts say exchange traded funds can give young investors "instant gratification" similar to that being offered by new tech-driven financial products, but without the high fees.
Investment experts have told young investors considering moving their retirement savings to the new tech-focused superannuation fund Spaceship that its fees were higher than most super funds and they would be taking on more risk.
Several professional investors pointed to its disclosures that showed Spaceship's initial portfolio of stocks would be assembled using of index funds and exchange-traded funds, which have become central to many new financial products that are aimed at millennial investors. ETFs are cheap and easy to access, even for retail investors.
"Charging double normal funds for effectively ETFs is a bit rich given technology should make things cheaper," said a global equities fund manager that has been following Spaceship's offerings.
Spaceship's founders and its backers have defended the fees and initial asset allocation setting, as they face the challenge of building a super fund from the ground up.
Exchange traded funds allow investors to buy defined baskets or indices of Australian and international shares for relatively low costs in the same way they buy a share of a listed company.
ETFs low cost
The Betashares Nasdaq ETF, which trades on the ASX and includes large weightings to Google, Facebook, Amazon and Microsoft, has an annual fee of 0.48 percentage points per annum. The fee on the Vanguard S&P;/ASX 300 Index Exchange Traded Fund is 0.14 percentage points.
ETFs "offer everything millennials desire,"s aid VanEck managing director Arian Neiron.
The firm has several funds listed on the Australian Securities Exchange.
"They get the instant gratification through convenience, which is one trade, low-cost diversification to a range of investment opportunities. There are so many ETFs out there they can invest how they want or how their peers invest."
ETFs have been among the most disruptive forces in the investment industry, lowering fees while increasing access to securities for individuals.
But they have also enabled the offerings of several startups that are targeting young investors.
For instance Acorn, the micro-investing app, also allocated investors into portfolios that are constructed using ETFs that are listed on the Australian Securities Exchange.
Robo-advisers too are constructing diversified portfolios of stocks and bonds for their clients using ETFs to lower costs.
Spaceship fees high
Chris Brycki, of Stockspot, a robo-adviser that allocated investors into portfolios of low cost exchange traded funds has been critical of the 1.6 per cent annual fee Spaceship has charged investors, which is double that of non-for-profit super funds.
Mr Brycki has taken aim at traditional superannuation funds via his "Fat Cat Funds Report" saying that the single most important factor in determining which super funds do better than their peers is fees.
"Funds charging more than 1.5 per cent per year have less than a one-in-12 chance of being in the top quarter of funds over five years – and even less chance over longer periods.
Paul Bennetts, founder of Spaceship, said in an email last week to investors that the fees were set at a higher level because Spaceship has a "vastly different approach to Australia's other 250 super funds who "sadly ... outsource their investment decisions".
Their allocation to technology will result in the fund "performing better over the long term than your current super by more than enough (much more!) to cover our fees".
Chief executive Patrick Garrett of robo-advisory firm Six Park also uses ETFs to construct portfolios. He attended a Spaceship meet-up on Thursday and said the super fund had an "interesting, provocative approach but "would need to be carefully considered for one's retirement savings".
Cautious on tech bet
Mr Garrett was cautious on the fund putting its faith in technology companies to outperform the broader market.
"Some single company examples were presented, but not much other analysis to demonstrate that such an investment strategy has been proven out over the long term."
Others said that upon closer inspection, Spaceship's technology bet wasn't as concentrated as it appeared.
The initial portfolio, as per its website, will have a bigger investment in James Packer's casino empire Crown Resorts than Asian tech giants Alibaba, and Tencent. Its stake in palette business Brambles was equal to that of its disruptive force Amazon.
Mr Bennetts said the fund had already reached the scale required to make investments in private technology companies such as Airbnb and Elon Musk's SpaceX.
