Super funds covet more global equities: Research

Superannuation funds substantially upped holdings in global equities but scaled back on cash, as well as local fixed income and equities in the second half of 2024, new analysis from J.P. Morgan shows.

The latest Super Fund Manager Radar note shows allocations to global shares jumped 173bps from June 2024, while investments in unlisted infrastructure and private equity each rose 27bps.

Despite a prominent tilt to global equities, the analysis, led by J.P Morgan head of equity research for Australia and New Zealand Jason Steed, shows super funds are collectively underweight in US mega-cap technology stocks or the Magnificent 7.

"The growth of super funds' global equities portfolios, both in absolute size and as a percentage of total invested assets, is eminently sensible as their AUM outgrows the domestic market," Steed said.

"Wider investment opportunities and better liquidity make the US appealing, offering super funds diverse opportunities, lower trading costs and, in certain sectors, less stretched valuations. In that vein, one could reasonably assume that mega-cap US tech would hold a particular appeal for super funds."

Super funds are underweight in five out of the seven Mag-7 stocks. Google and Amazon are the exceptions being overweight 14bps and 32bps respectively.

In other asset classes, cash (-86bps) was the biggest loser during the period, followed by fixed income (-52bps) and domestic equities (-45bps).

Interestingly, the research found that super funds' increasing ownership in domestic equities, combined with the lack of new equity supply - that is, the lacklustre number of IPOs - have led to several funds becoming substantial owners with stakes above 20%.

Since the global pandemic, IPOs in Australia experienced a drastic net decline - the lowest in over a decade.

According to the ASX, there were 210 new listings, excluding LICs, in 2021. However, this dropped to 94 in 2022, followed by 38 in 2023 and 28 in 2024. Furthermore, 400 companies delisted between 1990 and 2024.

Between June and December 2024, J.P. Morgan's research calculated the purchase of $64 billion worth of domestic bank equity by super funds.

"Historically, super funds have shown a tendency of purchasing bank stocks during periods of crises, while tempering their purchases during rallies and periods of outperformance. This pattern persisted until 2023, marking a potential shift in their approach to bank investments," Steed said.

For example, in the year to December 2008, March 2016, and September 2020, when bank share prices fell 44%, 26% and 35% respectively, super funds' net inflows into banks reached $5 billion, $3 billion and $1 billion respectively.

By contrast, in the year to December 2009 and March 2013 when bank share prices rose 54% and 32% respectively, super funds' net flows were either flat or slightly negative.

At a stock level, the bi-annual report found the "most-loved" stocks in the top 20 ASX companies are QBE Insurance, National Australia Bank (NAB) and CSL. Conversely, ANZ, Commonwealth Bank (CBA) and Fortescue are the least loved.