The industry fund has taken a 49 per cent stake in subscription vehicle provider Splend alongside IFM and other co-investors as it looks to build a 10 per cent exposure to climate solutions in its global portfolio.
Investors should keep a close eye on the new Cold War brewing between China and the US, but its outcome could still support “robust” trade and investment as strategic competition drives capital investment.
Why TelstraSuper sees ‘something very real’ in the Magnificent Seven
TelstraSuper has chalked up a nice double-digit calendar year return for its members, and US equities are – once again – responsible for a lot of it.
It’s not just AI hype, says TelstraSuper head of investment strategy David Schneider. It’s that a recession never materialised, the US presidential election was a clear-cut win for Trump, central banks charted the right course through inflation and geopolitical tensions have eased. But while all of that has contributed to the performance of the US market, it’s also meant that market has become fairly narrow and very expensive.
“Whenever we’ve had two calendar years in a row where the US market has generated returns around 25 per cent, we start the year with very expensive valuations,” Schneider tells Investor Strategy News. “You can still get a good return, but markets are priced for perfection; you need a lot of things to go right.
“And anything that could go wrong and negatively affect the outlook could have a very material impact given where valuations are. Investors are exposed to quite a material drawdown if things do go wrong – I’m not saying that they will, but any kind of a misstep could create volatility.”
That’s why some funds – like Colonial First State – have tried to get away from the US, investing in emerging markets and small companies. Schneider believes TelstraSuper is already appropriately diversified, with a slight underweight to the US, but that the AI story that has underpinned the price growth of the Magnificent Seven is truly compelling.
“The Magnificent Seven, these AI stocks – Nvidia in particular. There’s something very real going on there in terms of the productivity gains – something very genuine. It’s a fascinating story to see unfold, and it’s pleasing that our members get to benefit from it. Going forward we need to worry about is how expensive they are and how we position the portfolio.”
Schneider doesn’t expect next year’s numbers to be quite as scorching (though how exactly those numbers will be delivered is up in the air, with TelstraSuper set to merge with Equip Super at the end of 2025).
“My base case is that we’ll get single digit type returns (through 2025). Obviously there’s a wide distribution around this. We won’t get returns quite as strong as we’ve had in the last two years, but on balance the probable scenario is one where markets move up and down, giving us opportunities to trade around those movements.”
One critical question for US equities comes from Trump, and whether he’ll deliver on his campaign promises. Markets have already been buoyed by the expectation of corporate tax cuts, but the effects of potential changes to trade and immigration policy remain to be seen.
And while geopolitical risks have reduced, there’s some “simmering dangers” in the background.
“It’s possible that geopolitical risks are being completely underrated by the market,” Schneider says. “I do worry about Iran and their response to some of the things that are going on; if the White House takes a more aggressive view on Iran and Iran decides to shut down the Strait of Hormuz and all the oil and gas that flows through there that would have a material impact on oil and gas prices which would in turn be inflationary.”
