The most successful sovereign wealth fund is losing faith in U.S. stocks. Which market does he prefer?

European stocks will outperform their New York-traded peers in the next decade, predicts the management of the world's best-performing sovereign wealth fund, the New Zealand-based pension fund NZ Super Fund with $44 billion in assets, the Financial Times reported. This is a sign that global investors are losing confidence in the long-term prospects of U.S. securities, the UK's leading business newspaper said.

The European stock market was NZ Super Fund's largest position of those in which it has invested more than its standard investment strategy - as part of a tactical allocation of capital to the most promising markets, the fund's investment directors Brad Dunstan and Will Goodwin told the FT.

"Recently we've been shorting the US and taking a long position in European equities ... and that's purely because of their valuation," Dunstan said, adding that decisions in favor of one market or another are made "on a 10-year horizon." At the end of June, the NZ Super Fund had a 2 percent overweight in European equities and a 3.5 percent underweight in US equities.

NZ Super Fund's preference for the European region extends to private equity (PE). According to Goodwin, there are "good opportunities" here. He is looking for "young, success-hungry managers" in whose funds NZ Super Fund will be able to invest large sums and build strong relationships with the management of portfolio companies. Private equity holds about 5% of the New Zealand fund's assets. Goodwin does not expect the PE segment to become "a major structural part of the portfolio".

The NZ Super Fund managers' investment position is based on the fact that European equities (Stoxx Europe 600) are now trading below their "fair value" while US equities are trading above, and will lose that premium over the next decade. Dunstan called Donald Trump's statements on duties information noise for long-term investors, but the outlook for US interest rates leads him to consider overvalued US stocks, which now trade at a P/E multiple of 27.5, while European stocks trade at a P/E of around 16.

European stocks have lost ground to their U.S. counterparts in recent months as Trump has eased his most radical tariff threats and U.S. corporate earnings have remained strong. Over the past 10 years, stocks in the world's largest economy have significantly outperformed European stocks, with the S&P 500 index posting a total return of more than 310%, while the Stoxx Europe 600 returned just 115%, the FT notes.

The NZ Super Fund is the best performing sovereign wealth fund in the world over both the past 10 years and the past 20 years (the fund began investing in 2003) - with an average annual return of more than 10%, the FT writes, citing data from the Global SWF platform. NZ Super Fund management attributes the success to the fund taking "a lot of risk", a strategy that has paid off over the past two decades. It follows a total portfolio approach, which assesses risk across the entire portfolio - as opposed to the traditional approach, which sets a framework for investing in individual asset classes and makes it difficult to invest outside of them.

This article was AI-translated and verified by a human editor