AustralianSuper chief investment officer Mark Delaney believes a recession is likely, with the nation's largest super fund positioning its $280 billion portfolio for a downturn. Bonds, he says, are a key part of that strategy. 

"Our view is a recession is most likely and we've positioned the portfolio for that, so we're short stocks and long bonds," Delaney told the 2023 Morningstar Investment  Conference in May.

Transcript:


Mark Delaney: We like bonds now because we think, a little while ago, about a year ago, I was talking about preparing the portfolio for a recession. And I said really what you want to do in a bear market for stocks is find things which go up. I know it sounds really dumb, but that's what you've got to do. That's what diversification is. And so if you're going to have a recession, bonds are likely to go up. And so that's one investment you're pretty sure you're going to make money out of and rates are backed up, bond rates are backed up from under 4% to 4%, 10 years, that's reasonably attractive.

So we've bought a lot of those and funded it predominantly out of stocks, and running down at mid risk assets. I don't think if rates were back at 1.75, you'd have a lot of them in the portfolio. At 1.75 the chance for them going up a lot in an environment whereby the equity market falls is small. So they won't deliver much diversification and just imagine you've got 10% of your portfolio in the investment earning 1.75%. It's going to be practically negligible. So you have to find something else to make some money out of it, because you have to make your 6% return somehow and you're not going to make it by investing in something earning 1.75%.