HOLD Equity Trustees (EQT)

The Intelligent Investor Mickey Mordech

Akey recommendation from the Hayne royal commission was that registrable superannuation entities (RSEs) – the entities responsible for a super fund’s oversight and compliance – be prevented from assuming any obligations other than trustee. Appointing a truly independent trustee should remove the incentive for an RSE to funnel members into their own products or services.

This was a key factor in our first upgrade of Equity Trustees a year ago. As the country’s leading independent trustee, we expected it would attract a wave of super funds.

Although implementation of the commission’s findings has been delayed until the end of the year, super funds under pressure from withdrawals, complex rules and fraud risk are bringing their plans forward.

It has won big mandates with

Zurich, CommInsure, AMP and HUB24. Those wins, among others, have seen the super business quadruple funds under management (FUM) from $7 billion to $28 billion in just two years. As Equity Trustees’ cut is usually in the hundredths of a percent, the revenue for each new mandate is modest. But in aggregate, it’s a material annuity stream that will grow in line with swelling super assets.

Unfortunately, it’s the things out of the company’s control that are hurting it. A little over half of revenues are tied to major stock indices, so coronavirus has reduced earnings and the stock is only 25% above the pandemic lows. Still, while equity markets are a headwind this year, that will change as the global economy recovers. Until then, it’s reassuring to see signs of progress such as new contract wins.