CHARTS: Deutsche Bank is seeing something big happen with super funds

Australia’s superannuation funds have started pulling out of low interest deposits and piling into local equities.

Purchases of domestic equities have averaged almost $10 billion a quarter over the past nine months after no net buying in the preceding two years, says Deutsche Bank.

“Superannuation funds may be starting the ‘great rotation’, out of low yielding deposits and bonds, and into equities,” the bank wrote in a recent note on equity strategy to clients.

This move to equities has meant self-managed super funds dropping their cash deposit levels over the past two years as they seek better returns in a low interest rate world.

“The ramp-up in super funds’ purchases of domestic equities is a positive development for the market,” says Deutsche Bank. “And it is not just domestic equities that have benefited – purchases of securities in aggregate around three-year highs.”

Super funds bought into banks and real estate investment trusts (REITs) in 2014 and started buying other shares late in the year.

Deutsche Bank sees the trend to continuing because the money put into superannuation funds, about $80 billion last year, needs to be invested, as this chart shows:

US investors also ramped up their buying of Australian equities considerably in the past year even as their total global purchases moderated.

“This may reflect the weaker AUD and the high dividend yield Australia offers Vs global peers,” says Deutsche Bank. “Further solid buying from foreign investors seems likely given the fall of the AUD.”

But other investment funds haven’t been following the super funds, as this chart shows:

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