Investment bosses at Australia’s biggest superannuation funds say the standout local and global sharemarket performances of recent years will likely start tempering in 2025, but they are counting on US exceptionalism to keep driving returns.
The rise of artificial intelligence will also fuel share price outperformance, but savvy investors will look for companies integrating the technology into their operations well, rather than backing only those producing it, they said.
According to AFR Weekend’s semiannual survey of chief investment officers controlling the nation’s $4.1 trillion retirement savings pool, most planned to build their portfolios around global equities and listed and unlisted assets that tap the decarbonisation and digitisation trends.
“The US is likely to outperform Australia – and the rest of the world for that matter – led by tech. Just as the tech revolution seemed to be running out of steam, along comes AI,” said John Pearce, the CIO of $140 billion fund UniSuper.
“I don’t see the end of American corporate exceptionalism any time soon, and tech will play a big role in our investment strategy.”
US markets helped fuel Australians’ retirement savings to 11-plus per cent returns for most default MySuper options in 2024. The continuing market frenzy to cash in on AI companies and a sharemarket rally fuelled by Donald Trump’s presidential election win sent Wall Street’s equity returns north of 20 per cent for the year. The benchmark S&P/ASX200 index returned 7.5 per cent.
Super funds already invest heavily in overseas markets as they outgrow the ASX and local unlisted opportunities. Global equities account for more than a quarter of most of their portfolios, and a sizeable portion of their unlisted property, private equity, infrastructure and debt holdings comes from offshore too.
The biggest funds such as AustralianSuper and Aware Super have set up outposts in New York and London to capitalise on overseas opportunities, with around 60 per cent of inflows to most industry funds invested globally.
Mr Pearce said the US market was expensive but his fund would stay overweight in it, as its high share prices were “with good reason”, given the innovation and growth coming from there.
Mark Delaney, the long-time manager of AustralianSuper’s $340 billion-plus asset pool, predicted the US will continue leading the global equity rally, especially its tech sector.
“Looking out to 2025, we think sector leadership will broaden to include a wider group of sectors than simply technology,” he said.
HESTA chief investment officer Sonya Sawtell-Rickson said this broadening would be global and include companies that “begin to realise productivity gains from adopting generative artificial intelligence within their existing workflows”.
AMP CIO Anna Shelley said she “saw no reason to change” her overweight position on US equities given the likelihood they continued dominating returns, even with potential volatility after Trump’s inauguration as president later this month.
“We expect the new administration in the US will support sharemarkets, while the increasing use of AI will start to support productivity of large corporates, and hence profitability,” she said.
Rest Super interim co-CIO Simon Esposito said he was closely watching the policy uncertainty in the US but would likely remain fully invested as any outcomes from it would likely be market-friendly.
“[But] upside surprises to inflation and inflation expectations in the US would cause us to pause. Tariffs and immigration reform are a potential catalyst for this, which could change the near-term trajectory of interest rate policy in the US,” he warned.
Most funds flagged global equities as a key asset class to find more opportunities in, while UniSuper and Insignia joined the wave ramping up exposure to private credit.
Mr Esposito, Ms Sawtell-Rickson and Aware Super’s Damian Graham said they were looking at technology-adjacent investments in 2025. These include direct investments in the likes of data centres and telecommunications infrastructure. All three also singled out decarbonisation as a trend to tap for strong long-term returns.
Property back in the frame
Several CIOs also suggested the embattled commercial real estate sector may finally be reaching the bottom of its cycle, after several years of property downgrades as high as 20 per cent.
MLC Asset Management CIO Dan Farmer, who manages the super arm of listed wealth giant Insignia’s assets, said there were attractive investment opportunities in real estate currently, given the low prices.
MLC historically does not invest in the asset class as much as member-owned funds, as retail funds largely stick with liquid holdings. But it and AMP, also a retail fund, both said they were looking for commercial property opportunities.
Looking longer term, UniSuper and the Australian Retirement Trust predicted global and local equity returns would sit in the high single digits over the next decade.
HESTA and Cbus forecast returns of 7 per cent to 8 per cent for both, while Colonial First State predicted mid to high single digits. AMP anticipated returns of 7 per cent to 9 per cent for Australian shares and 6 per cent to 8 per cent for overseas ones, while Insignia was more cautious, with forecasts of 6 per cent and 5 to 5.5 per cent respectively.
