"Check Your Account Now"... World's Top Investor Warns of Historic Market Crash Signal

New Zealand Super Fund: "US Equity Returns to Revert to the Mean"

Lowered Long-Term Return Expectations… Recommends Portfolio Diversification

Rising Interest Rates Increase Valuation Pressure on Growth Stocks

The New Zealand Super Fund, which has consistently delivered world-class investment performance and served as a benchmark in global capital markets, has issued a warning about the possibility of a correction in the US stock market. The fund believes that the exceptional returns seen in recent years are likely to revert to the historical long-term average. Accordingly, it has advised against focusing solely on short-term high returns and instead emphasized the need to diversify assets and holdings to prepare for market volatility.

Inside the New York Stock Exchange. New York (USA) - Special Correspondent Yoonju Hwang

"Returns in recent years are double the 20-year average"… Lowering the long-term outlook

According to CNBC on the 16th (local time), Joe Townsend, CEO of the New Zealand Super Fund, raised concerns about a slowdown in US stock returns while announcing the fund’s operating results for the fiscal year 2026.

CEO Townsend noted that the returns on US equities over the past several years have been nearly double the annual average return over the past 20 years, stressing that at some point, returns are expected to revert to that long-term mean.

This statement has drawn attention because the New Zealand Super Fund itself is a large institution that has demonstrated outstanding, sustained investment results. The fund has recorded an average annual return of 9.68% over the past 20 years. Earlier this year, it was ranked among the highest-performing sovereign funds and public pension funds worldwide in long-term performance by Global SWF and the Sovereign Wealth Fund Institute (SWFI).

Its recent performance has also been robust. As of the end of June, the New Zealand Super Fund managed 94.4 billion New Zealand dollars—about 74 trillion won in assets—and posted a return of 14.2% over the past year. The annual growth amounted to 9.3 billion New Zealand dollars, or approximately 7 trillion won.

Despite this, the fund's managers have lowered their future expectations. Earlier this year, the fund revised its long-term expected annual return downward from 7.8% to 7.2%, reflecting the view that equity investment returns are likely to decline going forward.

From Big Tech Concentration to Portfolio Diversification

The risk management strategy proposed by CEO Townsend is portfolio diversification. He emphasized that while a concentrated portfolio can yield strong results in the short term, a more diversified portfolio is better suited to the investment goals of pension funds over the long run. Although US large-cap tech stocks have driven gains in recent years, those managing long-term capital must be wary of assuming that certain asset classes will continue to deliver outsized returns indefinitely.

A trader is working at the New York Stock Exchange in the United States. Photo by Reuters-Yonhap News Agency

The New Zealand Super Fund publicly discloses its portfolio holdings every six months, and as of December last year, its largest holding was Nvidia. Apple, Microsoft, Alphabet, and Amazon rounded out its top five holdings. As of the end of last year, the total scale of its US stock portfolio amounted to 31.7 billion New Zealand dollars, or about 25 trillion won.

Norway’s Sovereign Fund Also Warns “Don’t Count on Persistent High Returns”

Nicolai Tangen, CEO of Norges Bank Investment Management (NBIM), which manages Norway’s sovereign fund, also stated in a CNBC interview last month, “We should not expect returns in line with what we've seen over the past six months going forward.”

NBIM manages about USD 2.3 trillion—or around 3,150 trillion won—in assets. In the first half of this year alone, it posted a record semiannual profit of approximately USD 185 billion (about 253 trillion won). Yet, CEO Tangen believes that investors should not expect the high returns of the past to be repeated.

Rising Interest Rates Put Pressure on Growth Stock Valuations

Caution surrounding the US stock market is being heightened by changes in monetary policy. The US Federal Reserve (Fed) has increased the base interest rate for the first time in over three years, while the yield on 10-year US Treasury bonds has surpassed 5%.

When long-term interest rates rise, investors are able to achieve high yields from relatively safe government bonds, which can diminish the relative allure of equities. In particular, growth stocks and tech stocks, whose projected future earnings are reflected in current share prices, face greater valuation pressure as the present value of their future cash flows declines when rates rise.

Possibility of Further Correction by Year-End as in 2018 … Wall Street Warns “S&P500 Could See Up to 10% Correction”

Wall Street analysts have also presented specific correction forecasts. Dean Curnutt, CEO of investment advisory firm Macro Risk Advisors (MRA), projected in a recent report that, following the Fed’s rate hikes, the S&P500 could see a correction of 8–10%. Based on closing prices as of the 16th, a 10% drop would bring the S&P500 down to around 6,800, while an 8% decline would put it near 6,950.

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He also identified the risk that if companies fail to fully pass on higher financing and input costs to consumer prices, profit margins could suffer. Curnutt also warned that if the Fed moves forward with additional rate hikes, we could see a “second decline” in December.

Curnutt used the year 2018 as a comparison. At that time, the S&P500 fell about 10% between the September peak and November, and as the sell-off continued through December, the index was down by nearly 20% from its high. Whether today’s tightening environment will follow the same path remains uncertain, but the warning is that simultaneous increases in rates and valuation pressures could heighten market volatility.

“Tech Stocks Could Still Rise Despite Tighter Monetary Policy” – Counter Arguments

However, some argue that higher rates do not necessarily lead directly to falling stock prices. If corporate earnings improve rapidly enough to offset the burden of rising rates, there is still a chance for growth and tech stocks to rise.

Chris Harvey, equity strategist at CIBC Capital Markets, assessed that growth and technology stocks may rally even during the Fed’s tightening cycle. In fact, from June 1999 to May 2000—a period when the Fed was raising rates—the Nasdaq 100 surged 59%.

Michael Rosen, Chief Investment Officer (CIO) at Angeles Investments, also cautioned against missing out on the profit opportunities that often occur in the final stretches of a bull market. Because it is virtually impossible to perfectly time one’s exit and re-entry into the market, he advised that investors should be wary of making premature departures.

This content was produced with the assistance of AI translation services.