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AustralianSuper thinks shares look risky

The AustralianSuper Balaned option has just revealed a return of 11.08% for the year and over the past three years it has delivered an average return of 9.3% per annum. That’s not bad going for Australia’s largest Industry superannuation fund.

However, Mark Delaney, the chief investment officer of the AustralianSuper, has told the AFR that it will be reducing its exposure to equities.

Around 62%, or $87 billion, of its $140 billion of assets is currently invested in shares, but AustralianSuper will reduce that percentage to 55% or less.

Mr Delaney has fears surrounding the effect that the US Fed increases interest rates might have on the local and global share markets. He commented “I am not bearish – I just think that the Fed usually rings the bell for the end of the cycle. We have run a pretty solid equity exposure for the last four years and we are now getting to the end of that.”

I do agree with that line of thinking. The theory of low interest rates helping asset prices and higher interest rates hurting asset prices is well-established. You just have to look at the share prices of ‘bond proxies’ like Transurban Group (ASX: TCL) and Sydney Airport Holdings Ltd (ASX: SYD) to see this in effect.

The problem is that it’s hard to say when (or if!) interest rates will start to have an effect on share prices. It could be next week, next year or three years away. No-one knows.

Trying to time the market can be a bad idea because you could miss out on returns. In 2014 many people were saying the US market was expensive and there could be a crash. Four years later there has been no crash and a lot of gains.

Mr Delaney said “We know that at some point in the future markets will be more subdued, we will be keeping an eye on key policy makers, particularly the US Federal Reserve in relation to interest rates while also monitoring any action in relation to tariffs or other measures which may impact global trade.

“AustralianSuper’s aim will continue to be maintaining a widely diversified portfolio and actively managing it in order to provide stable long-term returns for members.”

Foolish takeaway

Of course, the market will dip or crash at some point in the future, it always has. But it’s also true to say that the global share market continues to rise over the long-term. I don’t think it’s a case of “sell everything” like RBS told clients a couple of years ago, but it may be prudent to hold more cash for more opportunities as they arise.

However, even now there are good opportunities for investors who know where to look. This top business is growing at a fast rate overseas in the US and Europe.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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