Bitcoin and other digital assets are deeply polarising topics for investors, with strong sceptics and advocates alike. Questions and debate about their role in super fund portfolios are important and needed. Bitcoin, as we know, is volatile, and has been marked by peaks and troughs since its inception 15 years ago.

Many, including AMP’s very own Chief Economist, Dr. Shane Oliver, have highlighted limitations to digital assets’ underlying investment credentials, given the challenge of valuing non-tangible assets that don’t produce cashflow. However, he also acknowledges the potential for digital currencies, particularly Bitcoin, to be used as an alternative store of value to gold – akin to ‘digital gold’.

Arguments against super fund exposure to Bitcoin have also noted it offers no yield. But most super funds already invest in many assets that have no yield, such as foreign currencies, derivatives and commodities and even some listed companies make no profit and deliver no dividends.

It’s also important to realise that many of Australia’s super funds already have an exposure to Bitcoin through their global equity allocation and benchmarks. MicroStrategy (MSTR), which trades on the NASDAQ and invests in Bitcoin, is a member of the MSCI World ex-Australia index – the benchmark prescribed by the Government’s Your Future, Your Super framework.  Coinbase (COIN), which holds Bitcoin, is a member of the same index.

Irrespective of differing views and opinions, there can be no denying that digital assets, including Bitcoin, are increasingly being recognised by many as an emerging and growing asset class. Significant structural changes, including the launch of exchange-traded funds (ETFs) by major international investment managers during the year, have further strengthened the legitimacy of the asset class among institutional investors.

As an investment management team, we had a responsibility, on behalf of our members, to assess Bitcoin’s investment merits, and the probability of its outperformance continuing into the medium to longer term. This aligns to our investment philosophy, to be curious, disciplined, and to identify shifts in markets and opportunities, Bitcoin is but just one example of this. After analysis, successful testing of our trading model, and healthy debate within our investment committee, we collectively determined there was opportunity to enhance the returns for our members by taking a small, tightly managed trading position in Bitcoin futures through our funds’ Dynamic Asset Allocation (DAA) program. 

The DAA program is specifically designed to provide diversification and upside to our members by investing in tradeable assets and commodities, including equity and bond futures, VIX futures, currencies, and traditional commodities like gold, copper, and oil. This trading model allows us to hedge our position and manage the volatility of Bitcoin, therefore limiting downside. Additionally, it’s implemented through regulated and liquid financial instruments that provide all the customary protections to investors.

We don’t hold Bitcoin directly but rather Bitcoin futures. Our holding, taken in May this year and well before the latest price uplift, is just 0.05 per cent of our total super funds under management.

While the trading strategy has so far proved very successful, it by no means represents a strategic asset allocation, nor is it a material driver of our super fund’s overall investment returns. But it does add a new dimension of diversification, through carefully managed, fractional exposure to what is widely considered an emerging asset class. Bitcoin futures are also an asset that behaves very differently to other asset classes held in the fund. This diversification helps reduce overall portfolio risk and provides the potential for greater long-term returns for members.

AMP Super’s investment team takes its responsibility to safeguard and grow the retirement balances of our members extremely seriously. It’s why this small step into Bitcoin has been taken with great care and consideration, and within the context of a diversified investment strategy.

Anna Shelley, AMP’s Chief Investment Officer