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Fund predicts geopolitical tensions, AI growth will shape 2025
Despite the challenges 2024 brought to markets, HESTA’s CIO, Sonya Sawtell-Rickson, says that 2025 is bound to be similarly unpredictable.
Markets were teetering over a precarious edge for much of 2024, with institutional investors grappling with heightened volatility, all the while trying to keep investment returns intact.
In conversation with Super Review, Sawtell-Rickson explained that unpredictability is unlikely to abate in 2025, but the year will present a new concoction of considerations, including ongoing geopolitical tensions, alongside policy developments linked to the newly inaugurated Trump administration.
But for HESTA, the chief investment officer (CIO) said the fund’s forecast of strong long-term contribution inflows and its focus on member outcomes will drive a more strategic approach to long-term allocations.
“From this position, we are able to invest into countercyclical and thematic opportunities, which help us diversify our portfolio risk,” she said.
HESTA’s largest strategy, MySuper Balanced Growth Option, returned 11.03 per cent in the 2024 calendar year. Its high growth option, buoyed by a higher allocation to growth assets, achieved a return of 14.18 per cent, while the more defensively positioned conservative option delivered 6.01 per cent.
“It was pleasing to see the diversified option portfolios benefited from contributions across multiple asset classes, including Australian and international equities, infrastructure, credit and currency exposure,” Sawtell-Rickson said.
“The domestic equity market generated returns exceeding 11 per cent, but it was outpaced by the stellar performance of international equities, which surged over 20 per cent for the year.”
According to the CIO, US tech companies, bolstered by a growing interest in artificial intelligence, were key drivers of international gains. Additionally, the US election results spurred a late equity market rally.
Moreover, higher cash yields continued to add value throughout the year, although the delayed interest rate cuts in several markets, including Australia, led to some softness in interest rate securities during the year.
Looking ahead, Sawtell-Rickson said: “AI and the associated tech drivers are here to stay, both from an investment perspective as well as streamlining internal processes.”
Reflecting on this week’s developments in the tech arena, the CIO acknowledged the rapidly growing tech sector is becoming more influential in driving market volatility.
“The recent release of DeepSeek shows investors need to watch this space closely as new competitors in technology emerge,” she said.
Turning to other sectors of interest in 2025, HESTA believes the real estate cycle is approaching its nadir, with opportunities poised to emerge.
“We also see opportunities continuing in areas such as innovative solutions to address Australia’s housing shortage, the infrastructure supporting artificial intelligence and climate solutions,” Sawtell-Rickson said.
Investments aligned with thematic such as affordable housing, healthcare and digital real estate are expected to see continued demand, the CIO said, and as such, are an ongoing focus for HESTA.
Moreover, the CIO highlighted value-add opportunities in offshore markets across favoured sectors will continue to emerge in 2025.
Speaking to Super Review earlier this month, ART’s CIO, Ian Patrick, similarly flagged new challenges and considerations in 2025, particularly with a change in leadership at the White House.
As such, Patrick shared ART intends to closely monitor how these developments could impact markets.
“We will be observing Trump and the enforcement of his proposed policies. The things that we will be keeping a particularly close eye on are the more interventionist policies such as tariffs,” Patrick said.
“Our sense is that these are pretty well largely priced in already in terms of fixed income markets, so we won’t be taking big positions in anticipation of what Trump will do; it’s more a question of whether he will he deliver on the policies he has proposed or not – and if not, what that means,” he said.
AUTHOR
Jessica Penny
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