Australian investors left in the dark over how their money is invested

Managed funds in Australia continue to lag the rest of the developed world in not being subject to a regulatory regime that requires the funds to publicly disclose their investment portfolios, leaving investors none the wiser as to how their money is invested.

Managed fund unitholders are also in the dark over what risks are being taken with their money and whether their money is being invested in accordance with personal preferences, such as avoiding investing in companies whose businesses contribute to climate change.

Investment researcher Morningstar has updated the fund disclosures section of its Global Investors Experience study, finding that managed funds in Australia continue to be an outlier among the developed world, with no requirement to disclose investment portfolios.

The rules that came into effect in Australia in early 2022 requiring superannuation funds to publicly disclose their investment holdings on their websites, updated every six months, do not apply to managed funds.

Grant Kennaway, global head of manager selection at Morningstar and author of the report, says the importance of timely reporting on portfolio holdings disclosures was recently highlighted with the collapse of Silicon Valley Bank in the United States.

“Local fund managers who invest in global shares could have owned shares in the bank, but investors would not have been aware of the exposure,” he says.

Timely disclosure of portfolio holdings is becoming even more important with increasing interest in ethical investing and concerns over greenwashing.Credit: Photo: Getty

“Fund investors in markets with best practice disclosures have a relatively clear picture of their exposures while those in markets, such as Australia, are left in the dark as to what their exposure to these securities are.”

Timely disclosure of portfolio holdings is becoming even more important with increasing interest in ethical investing and concerns over “greenwashing”, where fund managers can misrepresent the extent to which their strategies are environmentally friendly, sustainable or ethical.

Even the requirement for superannuation funds to disclose their portfolio holdings is “weak and piecemeal”, with some types of investments not required to be disclosed, Kennaway says. The only asset class where portfolio disclosure with super funds really occurs is listed equities, he says.

Kennaway says it will be hard to build a credible standardised environmental, social and governance (ESG) disclosure regime for super funds and managed funds given the “shaky” foundations of Australia’s “feeble” portfolio holdings disclosure requirements.

Kennaway says Australia is a “laggard” that has neither dealt with existing basic deficiencies in its disclosure practices nor adapted to changing investor expectations around ESG and stewardship disclosure.

“The only credible antidote to greenwashing is mandatory, standardised portfolio disclosures for asset [fund] managers,” he says.

Australian Treasury is consulting on the introduction of a mandatory climate change-related disclosure regime for large businesses and financial institutions, including superannuation funds. Managed funds appear to be excluded from the proposed disclosure regime.

Some specialist ESG managers voluntarily disclose all of their portfolio holdings, while many fund managers do no more than disclose their top holdings along with the percentage weightings of their portfolios to each asset class.

The funds argue that their intellectual property - what investments they hold -needs protecting, but disclosure regimes around the world allow fund manager to disclose with delays - typically at least three to six months.

For those who would like some assurance a fund is investing with ESG principles, the Responsible Investment Association Australasia certifies the green claims of managed funds and super funds, among other types of investments.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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