U.S. stocks regarded as risky by the most prosperous sovereign wealth fund; instead, they're wagering on European equities.

New Zealand Super Fund Shifts Focus to European Equities

The New Zealand Super Fund, a leading sovereign wealth fund, has been making significant moves in the global market, with a growing interest in European equities. Established in 2003, the fund boasts a team of 79 investment professionals based in Auckland.

The success of the New Zealand Super Fund can be attributed to its bold approach to investment, willing to take on high risks that have paid off over the past two decades. This strategy, coupled with its unique "Total Portfolio" approach, allows managers to be flexible in focusing the fund, enabling it to outperform other funds with similar growth strategies.

The fund's co-investment chiefs, Brad Dunstan and Will Goodwin, have been focusing on institutions mainly through direct investments and partnerships. These investments are guided by the Fund's principles of prudent, commercial investment and sustainable returns. While specific investment targets and timing are not detailed publicly, the tactics include direct investments, co-investments alongside external managers, and collective investment vehicles following the Fund's formal investment policies.

The shift towards European equities is a strategic move based on the view that these markets offer better value than the US equities in the long term. At the end of June, the NZ Super Fund was overweight in European equities by 2%, while it was underweight in US equities by 3.5%. This adjustment was made based on a long-term, ten-year horizon.

The fund's skepticism towards the US market is evident, with the NZ Super Fund's chiefs expecting US equities to lose their valuation premium in the medium term. They believe US equities are trading above their fair value and are likely to give up that premium sometime in the next decade.

The impact of US President Donald Trump's tariffs is largely insignificant for long-term asset owners, according to the NZ Super Fund. A total portfolio strategy, which enables dynamic, risk-based allocation across asset classes, makes the NZ Super Fund more agile than many of its competitors.

In a recent statement, the fund's CEO, Matt Whineray, said, "European equities, as measured by the Stoxx Europe 600, are currently trading below their 'fair value.'" He added that the fund sees more attractive entry points in Europe in the long term compared to the US market.

The New Zealand Super Fund's consistent high performance over the past ten to 20 years has earned it the title of the world's most successful sovereign wealth fund. With an average annual return of over 10%, the fund continues to set the standard in global investment.

U.S. stocks regarded as risky by the most prosperous sovereign wealth fund; instead, they're wagering on European equities.