Short-term noise reinforces long-term investment thinking: ART

Australian Retirement Trust (ART) says it will not be derailed by the short-term noise coming from global trade tensions and heightened risks of a recession but remain steadfast in how it will position members' savings for the long term.

Speaking at a financial adviser roadshow in Sydney, ART chief economist Brian Parker discussed the many risks he and the investment team are fielding in the wake of US President Donald Trump's most recent tariff announcements.

In the lead up to the event, major stock market indices lost billions in value, with the S&P 500 Index dropping as much as 6%, on the back of the trade war.

Parker warned that risks of a major global downturn has dramatically increased and will likely eventuate if US policymakers continue their current path.

"Our job is not to focus so much on what is happening in the short term. Absolutely we worry about what's happening in the short term, but we can't forecast it, and we can't control it, and we can't design portfolios on that basis," he said.

"We can't design portfolios to try and position for how markets are going to fare next month or the month after, or how they might perform over the next six or 12 months. We focus a lot more of our research effort and portfolio management thinking on how the world and how asset classes are likely to evolve over the next five, 10, 15 and 20 years."

The average age of an ART member is about 40, which means that the super fund is "hopefully going to be investing their money the next 20, 30, 40 and 50 years and that has to be part of that mindset."

The investment team is confident that the next decade will reward an equity risk premium and that equities will outperform cash and bonds.

The portfolio is currently underweight equities and overweight bonds and putting dry powder to work, notably in equities across non-US markets.

Relying on bonds alone to diversify away equity risk will not work, he noted.

"That doesn't mean you don't have bonds in your portfolio. You absolutely do, because under certain scenarios, bonds will do what you want them to do, but not under higher inflation scenarios, which is why we need private assets. It's another string to our diversification bow," Parker said.

Private assets also provide a bigger opportunity set, some inflation protection, "a smoother ride and a return premium".

"Is there likely to be a premium for illiquidity? We think the answer is absolutely, 'yes'," Parker said.

"Given that interest rates and bond yields are higher, and the future returns of conservative assets such as deposit rates are higher, more conservative members, on the other hand, can expect positive real returns."