The New Zealand Superannuation Fund, recognized as the world’s best-performing sovereign wealth fund based on long-term annualized returns, warned about a potential pullback in the U.S. equity market
The fund, which supports the pensions of retirees in New Zealand, surged 14.17% to NZ$94.4 billion (about $54.2 billion) for the 12 months ended June 30, an increase of NZ$9.3 billion from a year ago. The gains came despite the fund being light on U.S. stocks, as its portfolio includes timber, real estate, private market investments, and other equities.
Stable Returns Without Substantial Exposure to US Equities?
In the period when the fund saw around 14% gains, the S&P 500 index soared over 20% partly due to enthusiasm for tech stocks amid the ongoing AI boom. However, Jo Townsend, CEO of the Guardians of New Zealand Superannuation, sees a potential correction ahead.
"Returns for U.S. equities over the past couple of years are close to double annualised returns for the past 20 years,” Townsend told the Financial Times, adding that “we would expect there to be some reversion to the mean at some point.”
Townsend noted that in the short term, a “concentrated” portfolio can see strong results, but in the long term they believe a “more diversified portfolio is better suited to our mandate.”
Earlier this year, the Fund cut its long-term expected annual return to 7.2% from 7.8%. Townsend said the decision reflected the fund’s view that returns on equities could decline in the future and a decrease in the fund’s active risk budget.
The fund fell slightly behind its own passive reference benchmark, which is majority invested in global equities, in the period ended June 30. However, over the past 20 years, the fund has generated NZ$22 billion over and above the passive benchmark, according to Townsend.
However, the fund is not without exposure to U.S. stocks. The fund’s total U.S. equity portfolio was around NZ$31.7 billion at the end of last year, and had a stake of NZ$3 billion in tech giant Nvidia Corp. (NASDAQ:NVDA), reported CNBC.
AI Fears Grip U.S. Stocks, But Anthropic IPO Awaits
Experts are warning that investors are pulling back from U.S. equities as rising Treasury yields, $100-plus oil, and policy uncertainty heighten the risk of market volatility. According to Bank of America, citing EPFR Global data, U.S. equity funds saw $14.2 billion in outflows over the past three weeks, while global equity inflows also fell.
Meanwhile, BlackRock Chief Investment Officer Rick Rieder also turned cautious on U.S. stocks, while noting that the $40 trillion national debt is a mounting fiscal burden.
However, President Donald Trump pushed back on the slowdown in AI development, amid fears of potential harms to humans from advanced AI, noting that “whoever wins with AI wins.” The development comes amid tech companies spending billions of dollars to develop AI infrastructure, which has the market concerned about potential returns on those investments.
Anthropic, which has reportedly selected Nasdaq for its potential IPO, could see a valuation of around $2 trillion, surpassing the $1.75 trillion valuation of Elon Musk‘s Space Exploration Technologies Corp.‘s (NASDAQ: SPCX) listing in June.
See More: Top Value Stocks
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