The most profitable sovereign fund expects stock market falls

The New Zealand sovereign wealth fund, known for its top-performing investment, projected a decline in the stock market. Despite its reduced exposure to U.S. technology stocks, the fund achieved a 14% growth over the year ending in June. The fund, which manages New Zealand's pension system and has about half of its assets in equities, reported a 14.2% return, reaching $94.4 billion NZD ($54.2 billion USD).

This performance came despite U.S. index S&P 500 rising by more than 20% during the same period due to investor enthusiasm for AI. As a result, the New Zealand Superannuation Fund, which invests in timber, real estate, and private equity alongside stocks, lagged slightly behind its benchmark index, which is 80% invested in global equities.

Jo Townsend, the fund's executive director, noted that a concentrated portfolio might have captured recent short-term gains, but a diversified strategy better suited its long-term mandate. She also warned that U.S. stock performance over the past two years is almost double the annualized return of the past 20 years, expecting a reversal to the average at some point.

The fund revised its 20-year annualized return forecast from 7.8% at the beginning of the year to 7.2%. The New Zealand Superannuation Fund was the country's largest contributor last year, with the government investing NZ$27.4 billion since its establishment in 2001. Over the past 20 years, it outperformed its benchmark index by $22 billion NZD.

Australia's Future Fund, with a $356 billion Australian investment portfolio, reported slightly higher returns of 14.8% in the fiscal year ending in June. The Australian fund's performance improved after the Labor government reformed its mandate in 2024 to prioritize investments in national interest in energy transition and residential housing.