AustralianSuper is keeping a cautious eye on market volatility and the macro uncertainty that caused it but sticking to its long-term investment guns, according to Jesicca Melville, the fund’s head of mid risk portfolio strategy and research.
“Over the course of 2024 we were really constructive on the growth outlook for most economies and we were building our growth exposure, largely through international equities, and we were pretty constructive on the US in particular,” Melville told the Morningstar Investment Conference in Sydney on Wednesday.
“More recently, and even going into April 2nd (‘Liberation Day’), we’ve been monitoring those impacts closely…but it’s a little bit of a wait and see. It’s hard to predict what exactly the first order effects are, and we know that the second order effects will also be quite interesting,” Melville said.
“From a listed markets perspective, we’ve been using the market volatility at its extremes. We’ve seen significant drawdowns but also significant rallies, and we’ve used that to be able to rebalance the portfolio.”
But AustralianSuper is trying to avoid short-termism and stick with its long-term view, even when opportunistic investments do present themselves as a result of volatility.
“We’re value-biased investors, and we’re constantly looking for signs that the outlook has changed,” Melville said.
“We have many layers of alpha drivers across the fund, across different asset classes and different strategies. Equities – we have strategies across core value, growth, quality, quantitative – and then when we come to private markets, we’re thinking about where the different opportunities arise, where pricing looks most attractive and where we’re best getting compensated for the risk we’re taking.
“It’s never more important than an event like April 2nd where the world feels like it’s gone to hell in a handbasket – it’s all about coming back together and buckling down on the process.”
The uncertainty is compounded by the fact that AustralianSuper, like many other super funds, has had to look further afield to source its returns – though it’s also sceptical of valuations in the domestic market.
“I think that we definitely have a constructive view in terms of trading off Australia versus the rest of the world,” Melville said.
“Partly as a function of our growth, we do need to be exploring a bigger pond, and international equities is a broader opportunity set. We do think Australian equities look a bit expensive, and that’s consistent with that view…in terms of portfolio positioning, we are favouring international equities over Aussie.”
AustralianSuper maintains a number of offshore offices, and Melville said that the fund’s expansion into Europe and the Americas has represented a quantum leap in terms of the number and variety of private market deals it’s been able to source.
“Most of the unlisted assets don’t reside within our borders and the US is a really important market,” Melville said.
“So we’ve been thinking about how we build up having that presence in the US, and I can’t really give you the magnitude of how going to London was a huge leap in terms of depth of the market, and going from London to New York was another multitude again. It’s about expanding your ability to look for those assets.”
One opportunity it’s unlikely to take is in cryptocurrencies, an area that most super funds have steered clear of due to volatility and uncertainty around how it can be valued, though at least one fund – AMP – has seen fit to allocate to Bitcoin through its dynamic asset allocation program.
“We think about the underlying technology and the opportunities for our investors to get exposure to that – so we think about different industries, different companies, where the blockchain technology can be quite transformative to that and really improve their productivity,” Melville said.
“That’s something that’s embedded in the portfolio. The cryptocurrency itself? At its heart, we find that because it doesn’t really generate an income and we’re held to account on making sure valuations are current at any point in time, it’s very difficult to make it stack up as a standalone investment.”
