Australia’s UniSuper has increased hedging on its overseas investments because the local dollar is undervalued, John Pierce, chief investment officer of the superannuation fund, says in an interview with Reuters.
He says the A$166 billion (US$117 billion) fund, one of Australia’s largest super funds, “tweaked” its hedging strategy lately because it believes the Australian currency should be trading higher against the US dollar.
The Australian dollar has strengthened from about 67 US cents on January 1 to around 71 US cents on February 23.
“I have been surprised that it has taken the Aussie so long to get to 70 cents to be honest. Commodity prices are pretty strong. Usually when your terms of trade are strong, the Aussie would trade higher than it is,” Pierce is quoted as saying in the interview published on February 23.
UniSuper does not publicly disclose the size of its overseas investments. Market research website Top1000funds estimates UniSuper has invested around 35% of its assets under management in foreign equities.
Pierce says Australian pension funds invested in US equities typically have very little currency hedging because the US dollar tends to act as a safe haven, appreciating when there are negative shocks.
“We’re actually now getting paid to hedge,” he says. “When Aussie rates were below US rates, it was costing money. Now there’s a carry, that’s one positive.”
The Reserve Bank of Australia raised its key lending rate by a quarter percentage point to 3.85% on February 17, while the US Federal Reserve held its benchmark rate steady in the 3.50%-3.75% range in January. Analysts have priced in roughly two US rate cuts this year.
Spokespersons for UniSuper did not immediately respond to questions from Asia Asset Management.
