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With offence and defence in play, MLC tackles volatility head-on
MLC is leaning on its asset allocation and diversification expertise to navigate rising global uncertainty and seize opportunities amid the chaos.
MLC’s MySuper Growth Portfolio – where the majority of its members are invested – has delivered returns of 9.3 per cent per annum over the five years ending 31 March 2025. Over the past year, its returns were a more modest 5.6 per cent.
While its performance was primarily driven by “strategic exposure” to listed global and Australian shares – which enjoyed strong returns over recent years – more recently, markets worldwide have struggled to escape the shadow of trade uncertainty stemming out of the US.
This, MLC said, serves as a reminder that macro-economic factors, perhaps now more than ever, remain an important consideration.
Speaking to Super Review, MLC’s chief investment officer Dan Farmer said the wealth giant is leaning more heavily on its asset allocation and diversification expertise to cushion its portfolios from ongoing market volatility and increased concerns of a US recession.
“In our view, higher macroeconomic uncertainty works against ‘swinging for the fences’ asset allocation moves,” Farmer said.
“Instead, the emphasis is on fine-tuning portfolios and skilful risk management so that they can play both defence and offence.”
Elaborating on the fund’s offensive moves, Farmer said that its portfolios’ strong liquidity has enabled the fund to acquire assets at attractive valuations on the back of market disruptions.
“On the defensive part of the equation, we have in place derivatives strategies that can protect portfolios should the US equity market weaken,” he said.
In fact, Farmer said that MLC is underweight US shares. Super Review understands the fund made the switch in late 2024, notably ahead of Donald Trump’s official return to the White House.
“Recognising that US stocks, led by the Magnificent Seven, had grown to represent a disproportionate part of the global share market, we have maintained an ‘underweight’ position to the US share market for some time,” he said.
“Instead, we have allocated more of our clients’ funds to non-US markets to better manage risk.”
MLC also maintains its exposure to alternative investments, like insurance-related investments. This, Farmer said, provides an attractive source of diversification, given their performance is not related to sharemarkets.
Moreover, he said, MLC holds “real assets via unlisted infrastructure and unlisted property investments, which provide diversification benefits, along with long-term, stable and predictable cash flows often linked to movements in inflation”.
Private markets overall, Farmer said, present a compelling opportunity for long-term investors.
“We are strong advocates of private markets, as they bring complementary risks to portfolios that would otherwise be dominated by equity risk,” Farmer said.
“Moreover, the breadth of the investment opportunity set in private equity, for instance, is far greater than the listed equity opportunity, and that’s a great benefit from a diversification perspective.”
MLC’s view on the US
Expounding on MLC’s outlook for the US, Farmer believes the world’s largest economy has “likely transitioned back into a slowdown”, ending its short-lived and modest expansion.
“Tightening financial conditions, a shock to consumer sentiment, and a large tariff impost will, together, contribute to a slowing US economy in 2025,” he said.
“If President Trump were to hold effective tariff rates at current announced levels for a meaningful duration, the US would likely tip into a mild and short-lived downturn.
“The risk of a severe recession typified by deleveraging remains low given strong corporate and household balance sheets. Given policy uncertainty, the cyclical outlook has a high degree of ambiguity.”
As for the future of monetary policy in the US, Farmer said the Fed is clearly in a bind.
“It wants to cut rates to support demand, but a spike in inflation delays the decision somewhat. This is less a policy mistake than a forced policy bind, but the consequences are the same,” he said.
AUTHOR
Jessica Penny
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