...many of us do not realise the exposure we have to US assets, because we assume our super funds are all domiciled. Look at the fund allocation.
...even some balanced funds are into private equity, infrastructure and so on. For example, Unisuper Balanced Fund has 33% asset allocation in international shares primarily US stocks since US makes up a substantial part of the MSCI. Australian Super balance has about 1/3 in international shares, also primarily in US stocks and possibly higher than allocation in Australian equity market and a foreign currency exposure of about 30%.
...the least exposure has been gold and silver.
...the masses are not in gold and silver. How LA’s riots worsen ‘the biggest risk’ facing Australian super funds
Donald Trump’s immigration policy could create a shock to the US economy that would heap more pressure on the weakening US dollar. Australians are uniquely exposed.
Jun 9, 2025 – 8.57am
It’s easy to dismiss US President Donald Trump’s decision to send in the National Guard to quell protests in Los Angeles as yet another act in the White House’s great circus.
But beneath the drama is an issue that investors shouldn’t miss: Trump’s stand against illegal and legal immigration is changing the make-up of the US economy.
Official US employment data released on Friday showed the largest back-to-back decline in the foreign-born labour force in America since the pandemic shut the borders in 2020. There are some signs that the US labour market is softening at the edges – which would give the Federal Reserve room to cut rates and support the economy. But the fear is that the removal of immigrant workers will kill labour force growth and squeeze wages higher, adding new inflationary pressures.
“While everyone is focused on the impact of tariffs, the real story for the US economy is the collapse in immigration: down more than 90 per cent compared to the run rate of previous years, equivalent to a slowing in labour force growth of more than 2 million people,” says Deutsche Bank’s global head of FX research, George Saravelos. “This represents a far more sustained negative supply shock for the economy than tariffs.”
Saravelos says the Goldilocks mix of high employment growth and low wages that has powered the US economy in recent years now risks going into reverse. And “as the 2022 energy shock showed, a negative supply shock is not good news for a currency”.
The pressure on the US dollar has been mounting for months now. The greenback has fallen about 10 per cent against a basket of major currencies since early January. For David Rolley, a portfolio manager and co-head of global fixed income at Boston-based Loomis Sayles, where he helps oversee more than $US60 billion ($92 billion), that slide is becoming “the biggest risk” for investors around the globe. The big question from institutional investors
Rolley, who visited Australia last week, has become known as something of a global pension fund whisperer in his four decades in markets. He counts several Australian superannuation funds as clients, including Colonial First State and ESSSuper. He’s worried that as the cracks in US exceptionalism grow and the fall in the US dollar gathers pace, super funds will face increasingly difficult questions about how much protection is needed against a falling greenback.
Rolley says the big question he’s getting from institutional investors is the same in Australia as it is in other parts of the world: which assets are actually safe?
He’s got bad news – there isn’t a “safe” asset in this uncertain world.
“Our response to questions of that sort is: it’s not an asset, it’s an asset allocation. And if you are massively overweight the US right now, you may want to rethink that.”
Rolley says that, although the US equity market is “not without its charms”, America can no longer claim to be exceptional. Its macroeconomic growth rate doesn’t support the claim. Its labour force has stopped growing because of the clamps on immigration introduced by the Trump administration, and now there’s the subject of those ugly protests in Los Angeles. America’s fiscal position is also deserving of a risk premium, Rolley says. And then there’s the trade policy and those tariffs.
“The fact that they can change from day to day, or over the weekend, has created tremendous uncertainty,” Rolley says. But what’s really interesting is the preparedness of different markets to discount his uncertainty. Which markets have got it right?
Equity markets and the corporate bond market appear completely untroubled. The remarkable rally on the S&P 500 has it back towards record highs, while US credit spreads are near record lows,
By contrast, US government bonds have tumbled and yields have pushed higher. The US 10-year yield is now back above 4.5 per cent on fears the Federal Reserve will be forced to push out rate cuts, and the 30-year yield is back hovering just under 5 per cent.
But the clearest example of the risk premium for US uncertainty is in the American dollar, which has fallen sharply since early January.
So which markets have got it right? Equities and corporate bonds, or government bonds and the currency market?
“Oh, I am a dollar bear,” Rolley says. One side of the coin is the damage done to US uncertainty, but the other is opportunities in other parts of the world. The 15 per cent surge in the Swedish krona so far this year is a good example – the currency has done nothing for a decade, Rolley says, but with European defence spending on the rise as America’s foreign policy stance shifts, suddenly Sweden’s large defence sector is enjoying an inflow of capital.
“A little money coming out of a big market is big money in small markets,” Rolley says. “Smaller markets will probably benefit from a more diversified target asset allocation by the largest investors in the world.” It all comes back to the US dollar
Rolley says he’s still being told by big investors – including Australian superannuation funds, he emphasises – that they are holding on to their US equities because they need to be cognisant of global benchmarks, which are still dominated by American stocks.
“That’s a kind of circular logic, but it’s also very fragile,” Rolley says. And once money starts shifting out of the US, it could go into reverse.
For Rolley, it all comes back to the US dollar. He says the biggest reason foreign investors are not diving into US government bonds despite the relatively attractive yields on offer, is that they expect the US dollar to keep falling, which will erode their returns.
“There’s a new element of foreign investor caution as they try to figure out what they want to do in treasuries based on dollar bearishness. That’s the US dollar bearishness story that we have not seen in more than a decade.” Super funds need to start asking tough questions
To be fair, Rolley says, most bond investors fully hedge their exposure to the US dollar. But it’s a different story for equity investors, including Australia’s big superannuation funds.
Superannuation funds now have about $380 billion invested in overseas shares, of which around 20 per cent is hedged against a decline in the US dollar, down from 35 per cent a couple of years ago.
Most of the big superannuation funds, he says, will be relatively cautious about making major changes to asset allocations, partly because most follow a three-year cycle for strategic allocations.
But Rolley says if there’s one area in which super funds need to start asking themselves some tough questions, it’s about their US dollar exposure, particularly via equities.
“The folks that are most comfortable are the ones that do the fixed income side, where they are fully hedged on the US dollar, so they are already immunised against the biggest risk. If you’re going to ask me one thing to think more about, it might be thinking about whether those on the equity side should have higher hedged ratios.”
Rolley says the issue of hedging is “currently a conversation around the kitchen table”. But as the Australian dollar keeps strengthening against the greenback – it has risen from a low of US60¢ on April 8 to US65¢ – it will become more serious than that.
