Cautious Dollar Position Still Paying Dividends for NSW T-Corp

New South Wales Treasury Corp. ’s move to slash dollar exposure has delivered gains, and the state-owned issuer is positioning for further greenback weakness.

The Australian state’s shifted into defensive currencies such as the yen, franc and euro several years ago, cutting dollar weighting in its portfolio’s currency basket from almost three-quarters to 14%, Chief Investment Officer Stewart Brentnall said. The move lifted returns and the fund is now forecasting a further 10% slide in the dollar.

The strategy underscores how the state government authority is bracing for a prolonged downturn in the US currency, betting that policy turbulence and trade uncertainty may weigh on the greenback.

“We were not happy with what was 70% dollar exposure,” Brentnall said in an interview, adding that he sees dollar weakness a result of US policy confusion. “We changed the way that we looked after currency, settling on 40% of the total portfolio being unhedged — that minimizes portfolio volatility and lets us redeploy risk into higher-returning assets.”

The shift most recently added two percentage points to returns in the year through June 30, with unhedged exposure outperforming hedged positions by 7%. Brentnall ruled out any short-term active currency management, citing low predictability and weak risk-return trade-offs.

“I still say in the long run, currency doesn’t deliver returns,” he said. “We’ll bank the short term return and we may give some of that back. It may on the other hand have been the case that the US dollar was fairly overvalued anyway, and we may not be giving some of that back for quite a few years yet.”