Heavy 70% equity weighting drives NZ Super's record return

The fund's 29.6% returns marked its best ever and exceeded its reference portfolio, which has 80% allocated to equities, by 1.73%.
Heavy 70% equity weighting drives NZ Super's record return

New Zealand Super fund reported record returns of 29.6% for its fiscal year that ended on June 30, largely attributed to its portfolio mix, which has nearly 70% of its assets allocated to listed equities.

The fund’s results bring its total assets under management to NZ$59.8 billion ($42.39 billion), it said in a statement released on Tuesday (September 14).

NZ Super has 63% allocated to global equities, down from last year’s 67%. Domestic equities held steady from last year at 4% and private equity was reduced from 5% to 4%.

The remainder of its assets is allocated to timber, real estate, infrastructure, and other public and private markets.

Even though NZ Super’s global equity allocations fell, it still has a heavier allocation to global equities than its peers. AustralianSuper, which posted 20.4% returns, reported 32% in international equities and 25% in domestic. Future Fund posted 22% returns and has 27% of its assets in global equities, and 8.5% in Australian shares.

A global stock market rally since last March has boosted asset owner returns around the world. The MSCI World Index, which tracks large and mid-cap companies in developed countries, is up 18.29% year-to-date as of August 31.

In contrast, the New Zealand stock market is having a more muted performance, with 1.16% returns year-to-date as of August 31, according to the S&P/NZX All Index.

NZ Super’s performance beats its reference portfolio by 1.73%. In 2020, its reference portfolio had 80% allocated to growth assets and 20% to fixed income, with foreign currency exposures hedged to the local currency.

The fund has grown NZ$12.4 billion of contributions from the New Zealand government into the NZ$59.8 billion fund since its inception in 2011, when it was set up to be a government nest egg to help pay for future universal superannuation costs, the statement wrote.

Matt Whineray, NZ Super

“The Government is projected to start making withdrawals from the Fund to help pay for superannuation from the mid-2030s... Given that time horizon, we’ve built a growth-oriented portfolio that will generate strong returns over the long term and perform strongly in periods of market expansion,” chief executive Matt Whineray said in the statement.

Consultancy Global SWF wrote in an analysis on Tuesday that the fund has performed consistently well, with 10-year annualised returns of 13.4%, compared with Future Fund’s 10.1% and AustralianSuper’s 9.7%.

NZ Super’s CIO Stephen Gilmore told Global SWF that when Covid hit, the fund did not reduce risk "but instead increased it by leaning in to a falling and cheapening equity market".

"In 2018, we publicised what would happen if we went through a repeat of a shock like the GFC. So when we had the shock in 2020 our stakeholders were ready," Gilmore reportedly said. 

Managing director for Global SWF Diego Lopez told AsianInvestor that considering global equity performance since last year, "any portfolio heavily tilted towards equities, such as NZ Super’s, should have performed decently".

However, asked about the risks of being so reliant on equities, he said: "I wouldn’t necessarily say risky, but it is unusual for a sovereign wealth fund these days to have such a high allocation into listed equities, and very little in alternatives. NBIM (Norges Bank Investment Management) and NZ Super are the exceptions to the rule."

He added that the level of returns is likely to be a one-off and is not sustainable for any fund that is heavily invested in equities.

"I think everyone expects a correction to happen soon in the global financial markets," he said.

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