North America, which was the second largest source of ownership in the Australian Securities Exchange (ASX) 200, has seen its index funds, accounting for nearly 60% of US investment in the ASX 200, increase their ownership by 21% from 2014, according to the study by Orient Capital.
Of the US index funds, which represented one of the highest ownership in the ASX 200, 90% was managed by three companies: Vanguard, BlackRock and State Street Global Advisors (SSGA).
According to Orient Capital’s 2019 Ownership Trends in Australia study, which collated data through its work serving 80% of ASX 300 companies, Australian investors accounted for around 70% of issued capital in the ASX 200 in July 2019, with institutional and retail investors accounting for 42% and 28%, respectively.
Also, the two largest sovereign wealth funds in the world, Norway’s Norges Bank and the government Pension investment Fund of Japan (GPIF), greatly increased their direct investment in the ASX 200 over the last five years by 71% and 73%, respectively.
At the same time, ASX 200 ownership by China’s sovereign wealth and pension decreased considerably over the last five years, from $25.8 billion in 2014 to $11.1 billion in 2019, with a fall of almost $2 billion in the last 12 months alone.
“In either case, the growth in investment from other overseas sovereign wealth and pension funds has made up the shortfall,” Orient Capital ANZ General Manager, Justin Ellis, said.
“Norges’ announcement earlier this year that it would divest and cease investment in major oil, gas and coal development companies could however have severe implications for the Australian market, given its increased presence in the ASX 200.
“This development further emphasises the importance of clear, concise and purposeful engagements with sovereign investors, particularly around ESG matters.”
The study also found that Australian superannuation funds have more than doubled their direct investment in the ASX 200 over the last five years, from less than $24 billion in 2014 to more than $54 billion and this included an 8% increase in the year ending July 2019, from $50.4 billion to $54.6 billion.
Ellis said that said the trend towards internalisation was changing how ASX listed companies and super funds engage with each other.
“The flow-on effect is that super funds have become a substantially more important and active presence on the registries of ASX 200 companies, and in turn are now at the forefront of pushing for transparent and best practice ESG [environmental, social and governance] performance,” he added.
“The feedback we have received is that most companies have recognised this trend and are improving how they communicate with funds, but that there remains room for improvement – particularly outside of the ASX 20.”