NZ Super allocations steady amid market turmoil

Asset mix remains steady as real assets, factor investing and credit allocations outperform.
NZ Super allocations steady amid market turmoil

Ahead of the publication of New Zealand Superannuation Fund’s (NZ Super) annual report, CIO Stephen Gilmore told AsianInvestor the fund’s asset allocations remained largely unchanged, despite the recent widespread dislocation across global asset classes.

“Don’t look for big changes. We have a long horizon,” he said.

Gilmore identified the fund’s strong-performing strategies as equity factor investing, strategic tilting, dynamic asset allocation, tactical credit, and global macro. Sector highlights included infrastructure, property and forestry. 


“We deliberately increased exposure to real assets and macro funds over the past couple of years. Those decisions have added value,” he said. “The portfolio has held up very well in relative terms.”

Strategic tilting, which takes positions in equity, rates, currency, credit and commodity markets, had been short bonds ahead of recent inflation and interest rates shocks. The strategy also performed well in the year to June 2021, which involved buying equities during the sell-off at the start of the pandemic and led to returns of 1.8% above the fund’s passive reference portfolio, making it the strongest of all the fund’s active strategies over the period.

On 30 June 2022 the fund had AUM of NZ$55.7 billion, down from approximately $59 billion at the end of the previous financial year, a decline of -6.99%. However, in the two months to the end of August, the fund recovered by $2 billion to $57.3 billion.

Gilmore said recent declines in bond and equity markets meant that expected future returns on those asset classes were now higher. One consequence is that thresholds for investing in other asset classes are now also higher.

Gilmore also noted that while public markets declined, private market valuations also lagged, making private market assets relatively less attractive. While the fund would still consider private markets, attractive opportunities are harder to find, he added.


The year’s losses would have been larger without the contribution of the actively managed portion of the fund, which employs both internal teams and external managers. It accounts for a little more than half of the fund’s total AUM and outperformed the passive portfolio by 7.25% in the year to the end of June.

“The allocation doesn’t stay fixed. It depends on whether we think active investments will clear our hurdle,” Gilmore said.

As of June 2021, the last time the fund provided a breakdown, 63% of the portfolio was allocated to global equities, 16% to bonds, 6% to alternatives, 5% to rural and timber assets, 4% to domestic equities, 4% to private equity and 1% to both infrastructure and property. The fund returned 29.6% in the year to June 2021.

Gilmore declined to put a timeline on when US inflation might come under control.

“Core inflation in the US appears pretty sticky,” he said, pointing to the “false starts” that characterised the US exit from a prolonged inflationary period in the 1970s. He emphasised that important indicators, such as those related to owner-occupied housing and wages, were slower to exhibit inflationary signals. 

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