Super funds expand bank holdings amid inflows boom

Super funds have significantly increased their ownership of Australian banks in recent years, a trend analysts attribute to the sector’s robust growth rather than a shift in investment strategy.

In the financial year 2024, super funds emerged as the “clear standout buyers” of Australian bank shares, acquiring over $6 billion, despite investor concerns about record-high market valuations – a trend analysts attribute largely to substantial inflows into the super sector.

In a recent market note, Macquarie analysts Carlos Cacho, Victor German, and Jason Shao said that superannuation’s ownership of the banking sector increased to 29 per cent in the year leading up to June 2024, marking a 1.6 per cent rise.

This share has largely come at the expense of investment funds and offshore investors, who decreased their share in banks by 1 per cent and 0.3 per cent, respectively.

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In the June quarter alone, funds acquired $2.1 billion worth of bank shares, totalling $6.4 billion in purchases over the past 12 months, while investment managers sold approximately $7.1 billion during the same period.

Unpacking this trend, the analysts said inflows have been driving funds’ investment appetite for banks rather than a change in allocation.

When comparing holdings of authorised deposit-taking institutions (ADIs) to their total domestic equity holdings, the analysts found that super funds are only modestly overweight the banks – by 0.4 per cent.

Meanwhile, super funds’ holdings in domestic equities have surged 18 per cent over the past year, outpacing the overall market’s 9 per cent growth, a trend the analysts said as broadly consistent with the ongoing expansion of super investments in domestic equities.

This, the analysts said, is broadly consistent with the continued growth in super funds’ domestic equity investments that now represent some 30 per cent of the market.

“Despite super funds increasing their ownership share of banks and being net buyers, they have held their allocation to banks broadly steady in recent quarters. This might seem counterintuitive, but largely reflects the significant net flows into super funds,” Cacho, German, and Shao said.

“Indeed, we have not seen a material shift in allocations towards domestic equities or ADIs as a share of total assets from the super sector.”

According to the analysts, this trend is likely to continue in the near term, buoyed by mandatory contributions.

Net contribution flows, which are total contributions less benefit payments, have held at a record $64 billion for all superannuation funds.

“This strong pace of contributions is likely to continue in the short term given the 0.5 per cent increase in the super guarantee to 11.5 per cent from 1 July 2024, and the final increase to 12 per cent from 1 July 2025,” the analysts said.

Although super fund contributions and inflows are expected to persist, the analysts don’t anticipate this will lead to continued outperformance of banks compared to the market, as their positions are already largely neutral.

Instead, they identified offshore selling, likely on macro sentiment, to be the next potential flow catalyst, which would result in bank sector underperformance.