When President Trump moved to impose punitive tariffs on US trading partners, the price action that followed on most equity markets was variously described by the mainstream press as a “bloodbath”, a “wipeout” or “Armageddon”.
But the impact on member accounts has been far smaller than the headlines would suggest, according to Damian Graham, chief investment officer of the $188 billion Aware Super, who told media on Wednesday that sell-offs like those seen in the last few weeks are “uncomfortable, but not unusual”.
“Our conservative balanced strategy is basically flat for the year,” Graham said.
“But if people are in that strategy and reading that markets are down 20 per cent they’ll think they’re in negative territory. Even our high growth option is down 2.5 per cent for the year to date. These aren’t big numbers in the scheme of things and they’re coming off a year where they had very strong returns.
“A lot of our members don’t see that – they see the headlines and get very concerned and react.”
Aware went into the turmoil with a slight underweight to the United States and tech stocks, with its active managers pulling back after casting a cautious eye over valuations. And while Graham considers the fund’s 25 to 30 per cent allocation to private markets assets to be “relatively mature” and doesn’t want it to grow to form an even larger part of the portfolio, the investment team is keeping an eye out for deals.
“We’re always thinking about the opportunity set, and when we see what we think could be more material dislocations we are thinking about how we make sure we’re liquid as a fund to make sure we can take opportunities,” he said.
“We try to define what we think is an applicable level of available capital to invest where we see good opportunities, and then we try to make sure we aren’t overpaying for them, because you tend to get a bit of a gap between buyer appetite and seller price expectations. We’re trying to make sure that where we’re spending the illiquidity budget we’re being fairly rewarded.
“(But) we haven’t seen huge amounts of dislocation in illiquid markets yet, so we’ll see how that plays out.”
And, it could be argued, nor have super funds seen huge amounts of dislocation in the historically expensive liquid markets, which have come down from their highs but risen again following Trump’s decision to pause tariffs.
“I genuinely believe that there is the potential for us to see some downside in earnings… (but) just because a market is expensive doesn’t mean it’s going to sell off,” Graham said.
“If investors think things are getting worse, economically or earnings-wise, investors will tend to reduce their exposure. I don’t see the US market as being at a level of expensiveness that is uninvestable. But it’s the uncertainty around what happens economically that will drive whether investors want to reduce their holdings or whether there will be more weakness in the market.
“There’ll be more uncertainty, there’ll be more volatility in the next few months. It’s unlikely that what’s happening with the US administration is all going to go quiet. I think there’ll be a lot of machinations before we get to slightly more normal news flow.”
But Graham does think investors – and members – will get used to it.
“If we’re still talking about tariffs in the same way in 12 months’ time, I’m not sure they’ll be having the same impact on investment markets,” he said.
“The first time something happens it’s on the front page; the next time it’s on page four; the third time it’s in the back half of the newspaper. It can moderate in its impact, but it’s uncertain times for sure.”
Those uncertain times are unlikely to slow the deployment of member money overseas. Aware opened its London office two years ago to source investments across the UK and Europe – it also acts as a base for some investments into the US – but Graham said the fund will continue to buy homegrown assets, particularly as caution spreads through the global asset owner community and they pull back from investments that would have been a lock in calmer times.
“We think the ASX will keep developing and growing, we think there are lots of private assets here that will be good for the fund,” he said.
“But I think incrementally more will be invested overseas. Today we have about 50/50 global and domestic; it might get towards 60/40 or 45/55. It’s certainly in that spectrum. But we do think there’s lots of opportunities in Australia as well.”
