Australian Retirement Trust (ART) is currently overweight in US and UK bonds and underweight in US equities. But the fund still sees slight potential for value in select global equity markets, all the while maintaining a substantial allocation to unlisted assets.
That’s according to ART chief economist Brian Parker, who told InvestorDaily that the fund is not taking “massive amounts” of active risks in terms of its asset allocation at present.
“What we are doing, though – probably for the first time in several years – we’re finally starting to see value in bonds and so, given the sharp rise we’ve seen in bond rates, especially in the UK and the US and to some extent here … in terms of our active asset allocation, we’ve actually gone overweight US Treasuries and UK gilts,” he said.
“That’s been the first time in some years because it was only two, two-and-a-half years ago, where bond rates were so pathetically low that there was really very little strategic value on offer there. Now, finally, you can actually buy a portfolio of government bonds and actually get a positive real return over time. That’s a very, very pleasing development.”
In comparison to previous years, Mr Parker suggested that, for individuals in or approaching retirement, now is a “really good time” to begin de-risking a portfolio.
“Whereas two years ago, it would have been a really lousy time to do that, because I would have been buying into bonds that were giving me nothing,” he continued.
“That’s probably the most significant move, particularly given where we’ve come from. Being able to buy into bonds because value has finally proven to be a little bit attractive, that’s been a significant development, courtesy of the selloff in bonds we’ve seen in the last couple of years.”
In terms of equities, Mr Parker indicated that ART is seeing value in specific markets. He said the fund is slightly overweight Europe, the UK, and Japan but underweight the US.
“We just find valuations in the US market still very challenging compared to what’s on offer in Europe and elsewhere,” Mr Parker explained.
“We’re a little bit underweight the US, overweight other international markets. But we’re certainly not taking a large amount of active risk.”
Mr Parker noted that during the onset of the COVID-19 pandemic and subsequent stock market declines, ART had been quite assertive in purchasing equities.
“Since then, we’ve really been kind of lightening up on equities as they continue to recover. We’re certainly going to make adjustments in response to volatility, but we’re certainly nowhere near as overweight equities today, as we were, say, three years ago,” he added.
Meanwhile, Mr Parker confirmed that the country’s second largest super fund is maintaining a substantial allocation to unlisted assets. The primary unlisted asset classes for ART, as he pointed out, encompass real estate, infrastructure, private equity, and private debt.
“We’re still finding decent opportunities there, which I would define as, are we still finding opportunities coming across the desk, where you’re able to buy assets and get an expected return that is going to compensate you for the lack of liquidity, and is going to compensate you for the risks involved? And the answer is absolutely yes, we’re still finding opportunities there,” said Mr Parker.
“But we’re certainly continuing to be very, very selective, and in particular, we’re very much after opportunities that are perhaps more idiosyncratic, where the investment thesis is not as dependent on what’s happening in bond markets or in share markets”
This approach is what has driven ART’s investments in the aged care sector both in Australia and the UK, as well as a recent investment in student accommodation in Norway, and investments in industrial property in Australia in partnership with Mirvac.
Looking ahead, Mr Parker noted that ART is on the lookout for “platforms” that require an ongoing injection of capital, as the super fund continues to grow towards its target of reaching $500 billion in assets under management by 2030.
“As they grow, we can continue to supply them capital as we continue to grow. So we need to partner with people who are going to grow with us, because we’re still a rapidly growing fund. That’s the reality,” he said.
