As the Australian superannuation industry has continued to rapidly expand, hitting $3.6 trillion assets under management (AUM) as of June this year, super funds have had to look overseas to diversify their portfolios, bolstering exposure to global stocks more than any other asset class.
Assets are up $329 billion on 2023, representing inflows of around $6.3 billion every week. At a household level, the average super balance stands at $325,000, up 8.2% year-on-year.
During the first six months of 2024, super funds upped exposure to global equities by 227 basis points (bp) and added to domestic stocks by 37 bp. In fixed income, super funds’ weighting to Australian assets grew by 59 bp, while cash holdings were scaled back by 175 bp and global fixed income contracted by 104 bp.
“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,” said Jason Steed, head of Equity Research, Australia and New Zealand at J.P. Morgan.
Wider investment opportunities and better liquidity makes the U.S. an appealing market to super funds, offering diverse opportunities, lower trading costs and in certain sectors, less stretched valuations.
“In that vein, one could reasonably assume that mega-cap U.S. tech would hold a particular appeal for super funds,” said Steed.
However, J.P. Morgan Research analysis reveals super funds are underweight (UW) five of the ‘Magnificent 7 stocks’ – the select group of mega-cap tech stocks, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla that alone accounted for over 60% of the S&P 500’s return last year, including dividends.
Alphabet (+ 46 bp overweight) and Amazon (market weight) were the only exceptions, Notably, though, in the first half of the year, super funds have sharply reduced their UW positions in the Magnificent -7 by 159 bp.
At a stock-level, the largest OW positions in the U.S. equity market are in HCA Healthcare, Alphabet and Motorola Solutions, while the deepest UWs are in Apple, Nvidia and Berkshire Hathaway.
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