New Zealand Superannuation Fund's review of its reference portfolio concluded with the Auckland-based fund maintaining its 80% equity and 20% fixed-income weightings.
In a news release, Gavin Walker, chair of the NZ$29.7 billion ($19.5 billion) fund, said the board of directors, or guardians, is “satisfied that the 80% growth, 20% fixed-income ratio is appropriate.” The review is done once every five years.
Mr. Walker called the setting of that passive portfolio – meant to identify the lowest-cost, liquid market exposures needed to achieve the fund's return targets, and to serve as the baseline for moves to seek higher risk-adjusted returns — the “most important decision we make as a board.”
In a telephone interview, David Iverson, the fund's head of asset allocation, said deliberations on the reference portfolio reflect the investment team's views on the risk premium of equities over bonds for the coming 30 years or so, rather than prevailing valuations. The fund's strategic tilting program, which trims exposure to asset classes as their valuations push beyond the team's calculations for fair value, or adds exposure as assets become increasingly undervalued, is New Zealand Super's principal tool for addressing shorter-term volatility, he said.
Roughly 70% of the fund now is invested in line with the reference portfolio, the news release said. “We only make investments outside the reference portfolio when we are highly confident that they will improve the fund's performance vs. the reference portfolio,” said Matt Whineray, the fund's chief investment officer, in the release.
Monday's reaffirmation of the 80% equity-20% fixed income split nonetheless contained a few tweaks. The previous mix of 70% global equities, 5% global real estate investment trusts and 5% New Zealand equities was changed to 65% global developed markets equities, 10% global emerging markets equities and 5% New Zealand equities.
In the news release, Mr. Whineray said the addition of an emerging markets equity weighting to the reference portfolio simply reflected a belief that “emerging markets are underrepresented in all-world indices.”
The dropping of the 5% weighting for global REITs, meanwhile, reflected the investment team's believe that the roughly 4% weighting of REITs in world equity indexes provided sufficient exposure to that asset segment, said a fund spokeswoman in an e-mail.
The news release also said the fund will continue to hedge 100% of the reference portfolio to the New Zealand dollar, providing “a very clear performance benchmark for any active currency investments we make,” said Mr. Whineray.