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Super funds own $45b in bank shares, $13b in tech stocks

Caitlin Fitzsimmons
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Have you heard about Spaceship, the new tech-centric superannuation product aimed at Millennials?

If you are in the target market of 18-35-year-olds, it's probably only a matter of time. It's getting a lot of buzz from tech influencers and I've heard sponsored posts are popping up on Facebook.

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I wrote about Spaceship last year when it raised capital. It's now licensed and members have been using it in "beta" – a term borrowed from the software world – since January. 

The concept is a high-growth super product that focuses on technology. It's all driven through an app, of course. The investment strategy is diversified, including Australian shares, market indices, cash and fixed interest, but it has technology at the core.

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Global tech giants such as Apple, Google, Facebook, Amazon and Microsoft replace the typical "houses and holes" strategy of four Aussie banks plus two Aussie mining giants that is the bedrock of traditional super funds.

Eventually Spaceship plans to back private technology companies, including direct stakes in companies such as Uber and Snapchat plus early-stage start-ups through venture capital funds. This would be a small part of the portfolio, filling the same niche as private equity investments in other super funds.

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Not everyone thinks Spaceship is a good idea. Chris Brycki, the chief executive of robo-adviser Stockspot, says it's "clever marketing that covers up a lacklustre product".

Brycki says Spaceship's fees are way too high – at 1.6 per cent, that's almost double AustralianSuper's high-growth fund.

Stockspot's Fat Cat Funds Report suggests fees are the single most important factor for super performance, and funds charging more than 1.5 per cent a year have almost no chance of outperforming peers in the long run. 

'Technology wrong'

Brycki believes the emphasis on technology is wrong, given we are eight years into a tech boom that has already seen the value of large tech stocks rise by hundreds of per cent.

"They're targeting inexperienced investors to punt a high percentage of their retirement savings on one sector [tech] which is 'hot' today but won't be when the cycle turns," Brycki says.

Many of Spaceship's prospective members also work in technology, increasing their exposure. 

Brycki points out members who consolidate their super into Spaceship face a further risk because they're switching into a product with no life and total and permanent disability insurance.

He makes good points but I welcome the fact that Spaceship has opened up debate about the investment bias of superannuation funds.

Spaceship co-founder Andrew Sellen told me last year: "Most Australian super funds have too much concentrated on Australian shares, particularly the big four banks and BHP."

Sellen's statement seemed true at the time, and now research by Rainmaker Group confirms it.

Rainmaker ran a pilot study into portfolio holdings disclosure. Bank stocks account for an estimated 23 per cent of the Australian share portfolios of super funds. That translates to $45 billion, which means about 10 per cent of all bank stocks are owned by super funds.

So even though the industry super funds love to criticise the big banks, they are also closely entwined. 

International shares

The international share portfolios of most super funds are much more diversified. Technology is the leading holding, but it's just 6 per cent of the total asset class, which converts to $13 billion.

Alex Dunnin, executive director at Rainmaker, says the emphasis on big banks is because the financial services sector dominates the Australian Securities Exchange, and funds don't want to deviate too much from the market average.

Rainmaker didn't look at the resources sector in this pilot study, but many super funds also invest in BHP and Rio Tinto for the same reason.

About 18 months ago I was at an event where AustralianSuper chairwoman Heather Ridout spoke. On the topic of ethical investing, she said it would be impossible to screen out BHP Billiton from a balanced option because of its size.

It begs the question, why not just be an index fund instead? It's cheaper.

The other reason large super funds focus on the banks and miners is a practical one. The bigger the fund, the more they need to invest in big companies, because there's literally nowhere else for all that money to go without increasing the risk profile. Unless you shift away from Australian shares, that is.

"Some of the super funds are so big, if they don't buy bank stocks, what else are they going to buy?" Dunnin says. "If you're big, then it restricts you – you can get involved in bigger investments but it also limits your options."

Size downside

When it comes to superannuation we are often told that size is good. Rice Warner recently suggested super funds need a minimum $2 billion under management to benefit from economies of scale. But clearly there's a downside to size and as the industry consolidates it's only going to get worse.

For his part, Dunnin says he doesn't believe in the $2 billion threshold. "There are big funds that perform below their weight and small funds that perform above their weight," he says.

Of course, a product like Spaceship is not the only option for someone who feels their super fund has too much emphasis on Australian banks and miners. Note, this is information not advice.

You don't have to go all the way to a self-managed super fund either, because most super funds now offer direct investment options to members, where you can choose to invest in specific assets. 

Dunnin says the funds don't push direct investment, and he suspects they mainly offer it as a defensive measure, but they're actually good value.

"They're really good options, they're really cost effective," he says. "If you want to get into share trading through your super, and choose lots of stocks and ETFs, they're a really cheap way of doing it."

Caitlin Fitzsimmons is the editor of Money and a regular columnist. You can find her on Facebook and Twitter.

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