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ART flags ‘inherently volatile and uncertain’ outlook

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The chief economist of Australian Retirement Trust has discussed how one of the country’s largest super funds has reacted to recent geopolitical developments.

Australian Retirement Trust (ART) chief economist Brian Parker has highlighted geopolitical uncertainty as being both a challenge and an opportunity for the $260 billion super fund.

Speaking with InvestorDaily, Mr Parker said that one of the main messages that ART has been trying to communicate to its members amid the recent uncertainty is that the fund cannot design portfolios based on its own or any other geopolitical forecasts.

“You might say there’s a list of things that we worry about, obviously – the ongoing war in Ukraine, recent developments in the Middle East. No one knows how these events are going to pan out,” Mr Parker said.

“Even if peace were to break out in Ukraine tomorrow, and if the current conflict between Hamas and Israel were to cease tomorrow, the reality is the world is still going to be a very uncertain and very volatile place geopolitically and that’s the reality of the world we’re in.”

While Mr Parker argued that there is “very little” that can be done in advance, he said that investors such as ART have the opportunity to take advantage of subsequent volatility.

“In the last few years, whether it’s for fundamental reasons, whether it’s for economic reasons, or whether it’s for geopolitical reasons, when you have seen market volatility, we’ve certainly taken advantage of that,” he said.

“We are prepared to make adjustments to our asset allocation in response to that volatility and we’ve certainly done that, and so while you can’t invest in advance for geopolitics, you can certainly take advantage of volatility when it comes up.”

Heading into the final months of 2023 and into 2024, Mr Parker predicted further volatility for markets as economic and geopolitical challenges persist globally.

“I don’t see the world becoming a terribly happy place either in an economic sense or in a geopolitical sense over the coming months. I think we are in for certainly more volatility,” he said.

Mr Parker joked that, if he was able to predict the movements of markets in the coming weeks and months, “I’d be sitting in a farmhouse in Tuscany”.

“Just as we can’t really design portfolios on geopolitical forecasts, we can’t really design portfolios on our own or anybody else’s ability to forecast exactly what’s gonna happen in the economy and in markets over the short term, because no one really knows. It’s just an inherently volatile and uncertain proposition,” he said.

“What we can do, though, is build portfolios that are designed to achieve their long-term objectives. That’s primarily what we get paid to do.”

Longer term returns will be ‘somewhat lower’

ART’s Super Savings Balanced option returned 10.0 per cent over the year to September and 8.0 per cent per annum (p.a.) over the past 10 years. However, Mr Parker warned that super fund returns will likely be lower in the years ahead.

“We’ve actually come off a decade of very good results for members from superannuation and so the view in the rearview mirror still looks really good despite all the volatility we’ve seen, despite the war in Ukraine, despite COVID, despite going back further, the aftermath of the GFC, the Euro crisis, etc,” he said.

“There’s been plenty of things to worry about over the last decade but frankly, over the last decade, every period of volatility, every downturn, every crisis, has come to an end fairly quickly and so it’s been a terrific period to be an investor.

But the view in the “windscreen”, he suggested, is looking slightly more problematic, with longer term returns expected to be “somewhat lower”.

“We all hope we get a decade of returns such as the last decade but frankly, investing is like life in general. I’d much rather be pleasantly surprised than bitterly disappointed,” Mr Parker said.

“I think it’s important that members of super funds have a realistic and sensible expectation about what sort of returns are achievable and sustainable over time, and it’s not 9 or 10 per cent p.a. It’s not real returns of 4.5, 5 per cent. It’s more likely real returns of about 3.5 per cent or so after fees and taxes.”

Chant West recently reported that the median growth fund delivered a real return of 5.1 per cent p.a. since the introduction of compulsory, “well above” the typical 3.5 per cent target.

Meanwhile, SuperRatings recently suggested that geopolitical tensions will likely be among the “dominant drivers” for super returns over the coming months.