Australian Retirement Trust Pty (ART), the country’s second-largest pension fund with $330 billion in assets under management, has adopted an increasingly bearish outlook on US Treasuries. The fund is underweight US bonds through its dynamic asset allocation strategy, citing concerns that Washington’s fiscal policies may fuel inflation, according to senior portfolio manager Jimmy Louca. ART is one of Australia’s largest superannuation funds, managing retirement savings for over two million members. They invest these funds across various asset classes to provide long-term returns for their members’ retirement.
Louca, who heads ART’s multi-asset dynamic asset allocation arm, stated that better value exists in markets such as the UK and Australia. Despite recent dovish signals from Federal Reserve Chair Jerome Powell, ART anticipates that price pressures could accelerate due to a larger US fiscal deficit and the continuing repercussions of the trade war initiated by the Trump administration. He highlighted a cyclical easing by the Fed, but noted risks associated with fiscal-related concerns, also pointing to a structurally inflationary policy mix of robust US fiscal spending and a Fed more inclined to maintain full employment.
ART’s shift away from Treasuries reflects a broader trend among major investors, including Taiwanese insurers and Hong Kong pension funds, who are re-evaluating their holdings of US assets. A US rating downgrade and concerns regarding the Federal Reserve’s independence are driving investors to explore alternative investment opportunities, such as top-rated Australian and UK corporate bonds.
Concerns about the Fed’s autonomy were heightened recently after former President Trump’s efforts to remove Governor Lisa Cook, contributing to a widening gap between five and 30-year Treasury yields, reaching its widest point since 2021. This uncertainty has further solidified ART’s decision to reduce its exposure to US Treasuries in favour of other markets deemed to offer better risk-adjusted returns.
