Australian $240 Billion Pension Fund Snaps up Japanese, European Stocks and UK Bonds

Australian Pension Fund Increases Investment in Global Equities, UK Bonds

Australian Retirement Trust's Strategic Response to Market Volatility

By Scott Murdoch

SYDNEY, March 31 (Reuters) - Australia's No.2 pension fund has increased its global equities, Australian and British bond investments, some of the world's most sold-off asset classes, in the past month to take advantage of financial market volatility created by the Iran war.

Dynamic Asset Allocation and Trading Activity

The Australian Retirement Trust, which has A$350 billion ($240.42 billion) in funds under management, is carrying out more direct market trading than usual, according to Jimmy Louca, a senior portfolio manager at the fund.

ART has a dynamic asset allocation strategy in which ART can buy and sell assets through its in-house trading desk. It typically trades once a week based on changes in relative valuations between assets and countries, Louca said.

Increased Trading Frequency

"Whereas in something like this, we're trading almost every day, and this drawdown is still early and still going ... If (the decline) picks up we will pick up our activity to take advantage of cheaper assets," he said in an interview.

Global Investment Expansion

Australia's pension funds, known locally as superannuation funds, are becoming powerful global investors with about A$4.5 trillion worth of funds under management. A growing portion of that capital pool is being deployed outside Australia.

Focus on Impacted Markets

Louca said ART has raised its holdings of equities over the past month. "But we've increased them more in those markets that have been impacted more from this crisis - which is mostly energy importers, given we know that they're the ones that'll turn around the most once there's a resolution and provide the most attractive entry points at the moment," he said.

Preferred Sectors and Regions

Those markets include Japan and Europe, where ART has increased its holdings, with the fund preferring Japanese financials and European defense sectors, Louca said.

Japan's Nikkei is set to log a 12% loss through March, its largest since 2008. A selloff in mining stocks has contributed to an 8.2% drop in Australia's benchmark S&P/ASX 200, heading towards its biggest monthly decline since 2022.

Bond Market Adjustments

Louca said ART had also raised its British and Australian fixed income investments, where yields rose as global investors adjusted their expectations for future rate rises with inflation expected to spike as a result of the Iran war.

British Gilt Market Performance

Losses this month in Britain's gilt market have been the heaviest since 2022, with two-year yields up 96 basis points since war broke out as investors brace for rate hikes.

Fund Performance and Sector Comparison

ART reported a 9.6% annual return in its balanced fund, outperforming an 8.8% rise across the sector to December, the most recent figures available show, according to SuperRatings.

($1 = 1.4558 Australian dollars)

(Reporting by Scott Murdoch; Editing by Sonali Paul)