Analysis-Australia's pension funds start questioning US strategies

By Tom Westbrook and Stella Qiu

SINGAPORE/SYDNEY (Reuters) -Funds successful Australia's A$4.2 trillion ($2.7 trillion) pension assemblage are rethinking immoderate of their long-held strategies of buying U.S. assets and the dollar, arsenic assurance successful American maturation wanes.

Volatility astir Sino-U.S. commercialized tensions this twelvemonth has forced investors to reassess their U.S. vulnerability and the relation of the dollar, which has lately failed to behave arsenic a harmless haven currency amid heightened uncertainty astir Washington's economical policy.

While determination person not yet been immoderate large shifts successful strategy, currency dealing desks successful Australia person noticed humble changes successful hedging request from immoderate pension funds.

Those hedging tweaks are nether the spotlight globally and Australia's pension funds, known locally arsenic superannuation funds, person agelong kept debased FX hedging ratios connected ample and increasing overseas banal portfolios.

When U.S. equities fell, funds allowed hedging ratios to emergence by not keeping their currency positions precisely successful measurement with plus prices, said Troy Fraser, caput of overseas speech income for Australia and New Zealand astatine Citi successful Sydney.

"You would expect the funds to beryllium selling Aussie and buying U.S. to set oregon to rebalance their hedge ratio," helium said.

"We've seen a small spot of that, but not a lot. I deliberation funds are mostly blessed to beryllium longer Aussie."

Fraser said funds were weighing their plus mix, hedging costs and the outright level of the Aussie.

Were it to widen it could determination the currency, and successful abstracted probe Citi successful February estimated that a 5% displacement successful hedging present could propulsion the Australian dollar arsenic overmuch arsenic 11% higher against the greenback.

At astir $0.64, it's been falling connected the dollar for astir 15 years since touching $1.10 successful 2011.

Along with a inclination to driblet reliably whenever planetary stocks fell, cushioning losses successful Aussie dollar terms, the Aussie's behaviour encouraged a debased hedging ratio. Industry-wide hedging connected overseas equities was astir 22% successful the December quarter, according to the astir caller regulatory data.

"Unhedged has worked," said Ben McCaw, a elder portfolio manager astatine MLC Asset Management.

"It was lowering the volatility of the portfolio (and) providing a affirmative instrumentality to the portfolio ... truthful that was astir the eventual asset," helium said.

Now, however, long- and short-term factors are starting to displacement however the Australian currency trades. He has been reducing U.S. dollar currency vulnerability for astir 3 years.

Others are keeping a watching brief. CBUS, which manages much than A$100 billion, has kept currency vulnerability dependable but the U.S. dollar, which fell done marketplace turbulence successful April, caught the attraction of money CIO Leigh Gavin.