The US is looking less and less attractive as an investment destination but it’s getting harder and harder to get away from it, according to senior investors convened under the Chatham House Rule at the Investment Magazine Fiduciary Investors Symposium.
One problem is that, for many Australian asset owners, the US comprises significant chunks of the benchmarks against which they or their peers are judged; it’s one thing to form a view that the US is no longer as attractive an investment destination as it once was but quite another to express that view through an underweight. AustralianSuper’s decision to not throw buckets of money at Nvidia in the 2024 financial year – received with quiet approval by many of its peers, who viewed it as a legitimate risk management move – saw it return 8.46 per cent when other funds were posting double digits, a result that saw it dragged by the press. Concentration risk be damned – there is still no alternative.
And then there’s the other problem. The Trump problem. Though nobody who does any business or investing in the US will call it that for fear of provoking the administration’s wrath – evidence, perhaps, that the Trump problem should be taken very seriously indeed. Of course, nobody is making any big bets on the US becoming a banana republic that functions – or doesn’t – in the same manner as many of the countries where it has carried out its post-WWII military adventures. But it must be said that, in the aftermath of Trump’s election, nobody was taking those tariffs very seriously either, as evidenced by the price action of the S&P500 from November 5, 2024 to sometime in early April.
Still, the question remains about what asset owners can actually do about all this.
On the mundane issue of concentration risk in the US, investors will want to play the themes that have powered one of the most incredible stock market rallies in history without increasing their exposure to it – and in a time when growth is expected to be lacklustre generally.
The panellists nominated monopolistic infrastructure assets in safe, secure political environments will benefit from the mega themes of debt and inflation, while decarbonisation and AI are potential shining lights in a world where growth is declining. And if a time comes when 10-year US sovereign debt is offering 5 per cent – or 2 per cent real – that’s a pretty good bet to take.
For other panellists, future uncertainty over US policy and a private equity overhang in the portfolios of US endowments and pension funds mean new private equity dollars are likely to be directed to locales like India, where there’s “great capital chasing good ideas”. Elsewhere, valuations and earnings in Australian small caps also look promising.
But that’s the easy stuff. When it comes to the Trump problem – and the problems presented by the broader geopolitical environment of which he is a feature – many Australian asset owners believe they have the luxury of expressing their investment views over a long horizon, with their members effectively temporally diversified by the decades they have to go before their retirement. All of this could well constitute a blip in a 50-year investment journey.
But on this front, it’s worth considering a different view, sourced from English writer Paul Kingsnorth.
“The pattern of ordinary life, in which so much stays the same from one day to the next, disguises the fragility of its fabric,” Kingsnorth wrote in the introduction to his work Uncivilization. “How many of our activities are made possible by the impression of stability that pattern gives? So long as it repeats, or varies steadily enough, we are able to plan for tomorrow as if all the things we rely on and don’t think about too carefully will still be there.”
It might be the case that things go back to normal – that the US will step back from what could be a very dark period in its history and the S&P500 will continue its endless march higher, powering the retirement savings of everyday Australians for decades to come. It might also be the case that they don’t. Right now, super funds might have no choice but to shut up and dance – but they should also figure out what they’re going to do if the music stops.
