Chris Brycki, the founder and CEO of Stockspot, an automated investment adviser, penned this analysis of Spaceship, touted as a superannuation fund for millennials:
If superannuation were a religion, the newest kid on the block, Spaceship, would be preaching Scientology.
They get full marks for the use of flashy marketing and celebrity endorsers to distract people from the underlying financial product being sold. Look under the covers and you won’t find a tested process behind their investment strategy (to buy tech stocks), and no track record to support their high fees.
Just clever marketing.
If that marketing were helping engage young people to make better financial decisions I’d be a huge supporter, but it’s not the case. Investors in this fund are falling for the same traps the financial industry has been spinning for years; luring novice investors into the hottest sector of the day at the worst possible time and charging high fees to do so.
We’ve seen this all before. Targeting inexperienced investors to chase hot momentum stocks happened in 2000 and 2007. The highest inflows into tech focused funds in history was in 2000, just before the tech crash that saw the NASDAQ fall 80%.
Alarmingly, the Spaceship product has some clear contradictions which should be raising red flags for anyone who looks beyond the hype.
Their marketing explains that people have too much exposure to “old economy” companies such as BHP, but its own exposure to BHP is higher than a typical growth super fund. Spaceship invests more of its member’s money into Commonwealth Bank than into Amazon, Netflix and Ebay combined.
It stresses the importance of transparency but won’t disclose the ETFs (exchange traded funds) they invest in. Is this because the ETFs that make up their portfolio can be bought for a fraction of the cost the fund is charging?
It touts the importance of looking more than five years ahead yet they’re switching people out of super products with life insurance into their fund which has none. A move financial advisers would understandably advise against for the long term.
It promotes itself as “futuristic super” yet the tech stocks it buys are the ones that have already done extremely well.
Spaceship states it’s looking for “private technology company investments”. Yet the high-risk and high-reward nature of unlisted venture investing (ie private tech companies it plans to invest in) is contradicted by the unambitious growth target of inflation plus 2.5%. By their own admission this fund is looking to take high risk for low returns. Even Australian Super’s less sexy high growth fund targets inflation plus 4.5%, almost double.
Speaking of double, Spaceships fees are more than twice AustralianSuper’s high growth fund.
Our Fat Cat Funds Report shows the single most important factor in determining which growth super funds do better than their peers are fees. Funds that charge more than 1.5% per year have almost zero chance of being in the top quarter of high performing funds over five years — and even less chance over longer periods.
(Editor: The Spaceship fund lists fees on a $50,000 investment at 1.6%, or $800. AustralianSuper fees range from 0.05% to 0.73%.)
There will always be people willing to jump head-over-heels onto investment hype just as it’s about to peak. In 1999 there was the ANZ Global Technology Fund, the BT Technology Fund and AMP Capital Global Technology Fund. Like Spaceship today, all of these funds claimed “this time it’s different”.
No prizes for guessing who did well out of those funds (the managers) and who got left with a portfolio of shares trading down 80% from their peak in late 2000 …
Today we have a new generation of novice investors and a new shiny tech fund launching eight years into a tech boom when most stocks are already up 500%, 800%, 1,200% …
Where was this super fund in 2010 before these stocks had rocketed?
That would have been visionary.
Investing in tech stocks today is rear vision mirror investing. Classic hindsight bias.
I’m a big supporter of FinTech in Australia, but fintech starts with helping consumers make better financial choices. Encouraging novice investors to pay high fees to chase today’s hottest sector does not compute.