The way investors build resilient portfolios is changing, and Colonial First State chief investment officer Jonathan Armitage says the shift is partly tied to the retreat of the handful of US mega-cap technology stocks from their central role over the past several years as drivers of US equity market returns.

Armitage says the return path in CFS’s global equities portfolio has diversified away from reliance on a handful of large US technology stocks over the past six months.

“The Magnificent Seven, I don’t think there are seven, and a couple of them aren’t that magnificent anymore,” he says.

“You’ve actually seen a bit of a baton change from some of the US technology companies, which have continued to perform well, but companies in Taiwan, South Korea, have performed very strongly in the last six months or so.”

Armitage says CFS has worked hard to build resilience into the portfolio and make sure it isn’t “overly exposed” to one single factor.

“The diversification we put in by adding emerging markets, global smaller companies, 18 months ago has served our members very well,” he says.

“[And] the build-out in unlisted assets, private equity, the deployment of that is now rolling out properly. We’ve continued to add to our exposure in unlisted infrastructure, so the portfolios that we’ve got now, I think, are quite different from the ones that [we had] three years ago.”

Lower than expected returns in fixed income have also played into how CFS has rethought the building blocks of resilience.

“Some of the traditional areas of fixed income are not going to act defensively as you might think, and therefore you need to diversify those defensive components. We’ve talked about that in terms of private debt [and], we call them insurance-related investments in polite company, but catastrophe bonds. For want of a better way of describing it, it is asset-backed finance, so quite idiosyncratic individual lending components.

“They tend to be floating rate, but they are uncorrelated to what you see going on in government fixed income markets.”
The capacity of markets, and in particular equity markets, to recover from shocks that were neither forecast nor even foreseeable does not detract from the need for funds to invest time and energy in developing portfolio resilience.

“Cast your mind back to March when you saw the start of the conflict in the Middle East, you saw equity markets decline very sharply; cast your mind back to April last year, markets fell 10 per cent in three or four days,” Armitage says.

“We have demonstrated that the portfolios can be resilient in those type of periods. I think you have seen the portfolio being tested, we’ve been through those periods relatively recently, and yet this is the fourth year in a row that we produced double-digit returns.”

The FirstChoice Employer Super growth fund (MySuper Lifestage 1975-79) returned 12.74 per cent in FY26, 12.8 per cent in FY25, 14.3 per cent in FY24, and 12.2 per cent in FY23. The FirstChoice Employer Super balanced fund (MySuper Lifestage 1965-69) returned 10.81 per cent in FY26, 11.4 per cent in FY25, 12.1 per cent in FY24, and 10.5 per cent in FY23.

Armitage says that track record challenges the idea that funds’ ability to use non-traditional or idiosyncratic assets, such as catastrophe bonds, to build resilient portfolios is restricted by the Your Future Your Super performance test.

“It is perfectly possible, as we’ve demonstrated, to construct the sort of portfolio which aligns with those benchmarks that sit within the current test.

“Those are the benchmarks that we’ve been set by the regulators. It is up to us to find the investments that we think sit within the criteria I’ve just talked about, find the right benchmark to measure against them, and construct our portfolios accordingly.”

Armitage says that over the past 12 months hedged global equities outperformed unhedged exposures, and that CFS’s emerging markets exposure was a strong contributor.

We thought there was a big valuation differential, and in fact, there still is, between developed and emerging market securities and indices. We thought it was a good diversifier to… particularly US and US tech, and that has actually played out.

“There has been a reassessment about, first of all, the earnings prospects, but also the valuation for a number of emerging market tech companies, because they are absolutely at the epicentre of the build out of compute power.”

Private equity and infrastructure are areas of active work by the fund, and it has partnered with Morrison & Co to increase its private infrastructure exposure. Armitage says parts of private equity continue to look attractive for new capital commitments but that he isn’t recycling existing investments in order to put more money to work.

“That means that we’re having some very interesting conversations with some partners about how we would do that, how we would structure it, and we do think that the opportunity set within private equity, in particular, right now, from this starting point, for the next sort of five years or so, looks pretty interesting.”