As market volatility persists, some super funds are pivoting defensively, while others are strategically positioning to capitalise on emerging opportunities.
Mercer has taken a more cautious stance on global markets, trimming its exposure to international equities and increasing its allocation to the euro, as geopolitical uncertainty and elevated valuations prompt a rethink of positioning.
Darren Spencer, lead investment director for Mercer Pacific, said the moves are part of the firm’s dynamic asset allocation process and aim to shore up portfolios against potential downside risks.
“Given robust returns across sharemarkets over recent years, we have taken actions over the last few months that would potentially benefit portfolios in the event of a market downturn,” Spencer told Super Review.
This includes “moderately reducing” its exposure to global equities, which Spencer said includes US equities.
Instead, the fund is bullish on global real estate and Japanese equities, while also remaining overweight Australian government bonds.
Moreover, Spencer said Mercer is adding exposure to the euro, which has seen some of its strongest levels in three years after benefiting from recent announcements on European fiscal spending.
“In addition, a component of our exposure to international shares is ‘unhedged’ which benefits the portfolio when the Australian dollar depreciates in value relative to other global currencies,” Spencer said.
But while careful on global equities, the lead investment director acknowledged “room for positive surprises”, especially if tariffs are “negotiated away” or delayed further.
“The situation is obviously very fluid and at this stage, we have not made changes to our strategic asset allocations,” he said. “We will continue to monitor for the potential longer-term implications as they come to light.”
Moreover, Spencer stressed the long-term focus of super funds, saying that “markets have faced challenges before, such as the global financial crisis and the COVID-19 pandemic”.
“In all these instances, sharemarkets fell over a period of time, but ultimately recovered to surpass their prior levels,” he said.
To US or not to US
Australia’s second-largest fund, Australian Retirement Trust (ART), does not appear swayed by current market upheaval.
In a rather diplomatic response to Super Review, the fund said: “As one of Australia’s largest superannuation funds, we are constantly monitoring global markets and geopolitical developments that may impact our investment performance.
“Markets go up and down, but superannuation is a long-term investment, and our diversified global investment portfolio assists us in managing short-term risk.
“As always, our focus remains on delivering strong long-term returns for our 2.4 million members.”
Last week, on its member-focused podcast, ART’s chief economist Brian Parker said the $330 billion fund has actively been seeking opportunities in the current environment.
“Often when we see periods like this where sharemarkets are down, our first thought is, ‘Where’s the opportunity and where can we put money to work?’” Parker said.
“We’ve not been selling equities into this. If anything, we’ve been looking for opportunities to buy.”
But this sentiment isn’t shared by other funds, with some opting to lessen their US exposure.
Namely, Stuart Eliot, AMP’s head of portfolio management, told Super Review late last week that AMP Super closed its overweight exposure to US equities as far back as February, well before the most recent escalation in trade tensions.
This, he said, was a move designed to avoid the risks of a sell-off while positioning the fund to act as new opportunities emerge.
“We do not have the same qualitative overweight exposure to US shares,” Eliot said. “This was done in anticipation of expected volatility in markets and Trump’s policy directives to introduce tariffs, with the risk of a sell-off having meaningfully increased.”
By de-risking early, AMP now finds itself in a strong position to respond as new opportunities emerge.
“This week’s tariff impositions together with Japan’s gradual increase of its official interest rates compared with the rest of the world are both external shocks that could potentially create the opportunity to buy into equity market weakness, which we could not do if we had already been overweight,” he said.
“Instead, we’ve crystallised our profits and are continuing to watch this closely, having made sure the portfolios are ready to capitalise on any opportunities as they arise.”
The focus now, he said, is not so much on US markets, but rather on pockets of value emerging across Europe and other global exposures that offer more compelling risk-adjusted returns.
Similarly, UniSuper’s chief investment officer John Pearce told a podcast the $149 billion fund will be “questioning” its commitment to the US market.
“Medium-term, I think there are big asset allocation decisions to be made,” he said.
“In particular, like every other fund in Australia, we have quite a large exposure to US assets, and that’s been a very good place to be investing over the last couple of years, particularly given the US tech story. We’ll be questioning that commitment.”
