'Beware the predictions of political experts': UniSuper

UniSuper chief investment officer John Pearce said despite market and oil price volatility because of the ongoing conflict in the Middle East, US exceptionalism is not dead yet.

Pearce said that while there have been some ups and down associated with the conflict, he said this is another situation where a major geopolitical event has not translated into a lasting negative impact on the share market.

"In fact, I would suggest that fear levels didn't rise much at all. Why do I say that? It's because we're the finance industry. We measure fear," Pearce said.

Pearce said the VIX index - which measures market volatility - spiked far more on Liberation Day when US President Donald Trump announced his initial tariff plan than it has during this most recent episode.

"We see nowhere near the same level of fear, and in fact as we speak today, that fear has all but dissipated," Pearce said.

Additionally, Pearce said while oil prices have grown, and may remain elevated, it's unlikely to derail global growth.

"In particular, it won't be enough to derail the growth in corporate profits that are being driven by investment super cycles. We're talking about super cycles in AI, data centres, the energy transition, infrastructure," he said.

"All this is contributing to growth, and this is still happening regardless of what's happening in the Middle East."

Pearce said there were several takeaways from the crisis in the Middle East and how markets have reacted. The first being "beware the predictions of geopolitical experts".

"These predictions don't hold much value when the actors involved are irrational and unpredictable. There's a school of thought that Trump's administration acts with a 'grand master plan' in mind, that Trump himself plays 'four-dimensional chess', he's 'ahead of the game'. What nonsense," Pearce said.

"From the time this war started, it's pretty clear that it was devoid of a coherent strategy. It's been riddled with miscalculations from go to woe."

Pearce said another lesson, however, is despite the reservations and concerns the world might have with US leadership, in times of a crisis, global capital still flows to the US.

"And that's indeed what happened during the height of the recent panic. The death of US exceptionalism may indeed come one day, but it's not today," he said.

Pearce said in times of crisis, it's important to remember the only truly consistent, reliable, safe haven is the "humble cash account".

"When share markets were falling recently, gold prices were also falling. Bond prices were falling. These are traditional safe havens," he said.

Pearce added that while it is true that "cash is king", that may come at a cost and it's usually the cost of missing the recovery.

"Investing in the Australian market over the last 30 years-if you were fully invested in the Aussie market-your return would have been about 9.4% p.a. If you had just missed the 10 best days in that the 30 years, that return reduced to 7.5% p.a. That's a big drop when you think about the compounding impact of that. And that's just 10 days," he said.

"We know it's impossible to predict when those 10 days are going to happen. They happen often at the most unlikely of times. And it goes on. If you miss the best 20 days, the return goes to 6.1% p.a."

UniSuper members switching out of growth options into more defensive options like cash made up around $1.4 billion in member funds, but Pearce said around $300 million has since moved back.

"That means there's still a lot of money sitting on the sidelines. It's missed the recovery. It's not over yet, so those members might still get a chance to get back in at lower prices, but we just don't know. It's all a bit of a gamble," Pearce said.