The New Zealand Superannuation Fund will remain heavily invested in shares, saying that provides the best bet to achieve strong returns to help meet the country's future pension bill.
Photo: AFP
Following its latest five-year review, the Fund's passive Reference Portfolio - which provides the basis on which the majority of the $30 billion fund is invested - will remain unchanged at 80 percent ownership of equities and 20 percent fixed income.
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The Fund's chief investment officer, Matt Whineray, said it would weather the volatility in fund returns as asset prices fluctuate in the short-term, in order to maximise long-term performance.
"We don't try, in the Reference Portfolio, to express any views about what's going on in the market at the moment, we just say this is the mix of assets that we should hold over the long term. "
Mr Whineray said it would take major changes in the market to alter its view.
"If equities were a lot more risky than we assume, or the returns from equities were lower going forward than what they have been in the past."
The Reference Portfolio's existing 5 percent allocation to listed New Zealand equities remained unchanged, though the Fund's actual portfolio has about 7 percent invested in listed New Zealand equities, as well as a further 8 percent in other New Zealand assets.
But it has boosted the allocation to global equities from 70 percent to 75 percent, and Mr Whineray said 65 percent was targeted to developed markets and 10 percent to emerging markets.
"This is a technical change - we believe emerging markets are under-represented in 'all-world' indices, and hence we are correcting for that."
It has dropped the Reference Portfolio's 5 percent allocation to global listed real estate investment trusts.
Mr Whineray said the Fund has sufficient exposure to listed real estate through its global equity exposure.
It will also continue to hedge the Reference Portfolio 100 percent to the New Zealand dollar, meaning it is not impacted by changes in the dollar's value.
Interest rates in the United States are expected to rise later this year, which is expected to dampen stock markets.
Mr Whineray said the Fund could use other tools to consider interest rate changes and adjust the portfolio accordingly.
The Reference Portfolio is expected to return 7.7 percent over a 20-year period, which is 2.7 percent above the estimated risk free, or Treasury Bill, interest rate.
The Fund - which was established in 2001 to help pre-fund universal superannuation benefits - is not projected to start paying out money until 2031/32, and will continue to grow for many decades after that.