Asset owners staying invested in the US: Morningstar

Morningstar's latest Asset Owner Perspectives found that despite growing frustration with policy uncertainty and geopolitical volatility coming from the US, asset owners understand the need to continue to stay invested in the US market while ensuring deeper diversification.

Led by the Morningstar Sustainalytics and Morningstar Indexes teams, the report included direct interviews with 25 asset owners globally, including 12 across Australia and New Zealand.

Asset owners in Australia and New Zealand are pursuing a total portfolio approach to address continued global market volatility, policy uncertainty and the disruptive impact that artificial intelligence (AI) is having on markets.

Their focus is largely strategic and long-term oriented, with growing engagement in private markets and more defensive areas of the market such as infrastructure and real estate. They remain challenged with US policy but can't ignore this important market, Morningstar said.

"The path of rates and inflation is top-of-mind at the minute. We've looked through the war with Iran. We've looked through the supply shock to a large degree," an asset manager at an unnamed Australian superannuation fund said.

"But then when you look at the underlying fundamentals of the US market and its ability to generate higher returns on equity than other parts of the world ― that's a handbrake on us reallocating away from the US."

Another asset manager from a super fund in Australia said the fund has more appetite for things that are unlikely to be disrupted, like real estate or infrastructure.

"For example, AI is not going to displace a building," they said.

Asset owners also reported seeing artificial intelligence (AI) as a new powerful tool but are currently using it to augment, not replace, the skill and expertise they bring to the table.

"AI has actually improved and become a very helpful tool. And the output that it's producing on the first attempt is getting better and better, but it still needs a bit of 'NI', a bit of natural intelligence, to critically assess the output and make sure that it doesn't have any errors in it," an asset manager in an Australian super fund said.

"But we're increasingly using it and finding it a very useful way to assimilate large bits of information down to what's relevant."

Another super fund asset manager said while they haven't yet incorporated AI into investment processes in a formalised way in terms of decision making, they have started conversations around it.

"It is conversations we're absolutely having with all of our managers. What are you thinking about? How are you using it? What efficiencies can you get from it?" they questioned.