Credit: Matt Golding
“Australia’s equity-heavy super funds have become more equity heavy recently. And they’ve increasingly been going offshore for those needs after reaching something of a saturation point domestically; we estimate they now own just under a quarter of the ASX,” Dynan wrote.
In the decade to 2024, the typical “growth” fund’s allocation to international shares has increased from 28 per cent to 31.7 per cent, research house Chant West says, while the allocation to Australian shares has fallen from 26.3 per cent to 24.4 per cent.
Much of the money invested overseas ends up in American shares, which account for about 60 per cent of the world’s equity markets by value.
IFM Investors last month said super funds had $US400 billion ($635 billion) invested in the US, and it predicted this would pass $US1 trillion in a decade, releasing the numbers as super fund bosses and Treasurer Jim Chalmers met US officials in Washington, DC. Australian savings are not only in invested in US corporate giants such as Tesla, Meta and Amazon, but also unlisted assets such as container terminals, toll roads or gas pipelines.
Overall, the overseas foray has paid off handsomely for members. Chant West senior investment manager Mano Mohankumar say international shares have beaten ASX returns over the past five, seven and 10 years. Over 10 years, for example, international shares have returned an average of 13.2 per cent a year, compared with 8.5 per cent for Australian shares. He describes the outperformance of international shares as “meaningful”. “That’s benefited super fund members,” he says.
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The recent market volatility, however, has been a reminder that with high returns can come more volatility – much of which has been in response to Trump. Super funds dipped in February due to a Wall Street sell-off that rippled around the world, and Chant West estimates the typical “growth” fund is down about 2 per cent since the end of January. Even so, super returns were about 2.2 per cent in January, meaning returns are close to flat since the start of the year.
Super giants stay the course
Investors think this sort of volatility will be more common during Trump’s term, so could this cause funds to rethink their strategies?
The message from big super funds has been that they are committed to staying the course, despite the market ups and downs we’ve seen lately.
Sam Sicilia, chief investment officer of the $115 billion fund Hostplus, said short-term market movements were a natural part of investment cycles, stressing the fund was diversified across different types of assets, industries and markets.
“While we have investments in the US, they are part of this broader diversification strategy, and we do not anticipate any significant changes in response to current market dynamics,” he said in a statement.
Australian Retirement Trust chief investment officer Ian Patrick said the fund factored in geopolitical risk, and its ability to invest around the world meant it had more ability to diversify its investments. “We’re in a unique position due to how long-term our investment strategies are – we’re looking at investment over decades, not months or a year,” he said in a statement.
AustralianSuper’s investment chief, Mark Delaney, also told a Melbourne conference that volatility would probably continue, but the fund could handle such swings. Delaney said recent “volatility has been within the context of a pretty solid underlying economic backdrop,” according to Bloomberg, and the fund could absorb it.
The fund has said it puts about 70¢ in every dollar of contributions it receives into overseas investments.
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Despite the recent swings on sharemarkets, experts largely agree that that volatility caused by Trump is unlikely to spark any major changes in the sector’s long-term push to invest more overseas. That’s because investing overseas allows diversification (not putting too many eggs in one basket) that isn’t possible to get in Australia, given the sheer size of the super pool.
Executive director of SuperRatings Kirby Rappell says he hasn’t seen much change in super funds’ overseas plans, but there could be changes in the type of assets funds invest in. For example, they may seek out assets less likely to be harmed by tariffs, such as the defence industry. “There might be a shift in the mix of which sectors are more favoured by funds,” he says.
Aside from US shares, another big growth area has been in unlisted assets such as property, infrastructure and private equity. Indeed, the growth in super funds’ holdings of these assets in the decade to 2024 was even greater than the increase in holdings of offshore, according to recent Chant West data.
Mohankumar says the rationale for investing in unlisted assets is to give funds a broader range of opportunities, and it’s a trend that’s likely to continue. “There’s a broader investment opportunity set. Super funds’ FUM has grown significantly over time so [they] need to certainly explore the wider market.”
As the super pie grows ever larger, big super’s overseas push is only likely to gain momentum – despite inevitable market bumps along the way.
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