27 September 2023

Future funded: How investors can learn from the Future Fund’s moves

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Anthony Keane* says Australia’s Future Fund is still going strong and its financial decisions can help everyday Australians become better investors.

Australia’s Future Fund manages almost $150 billion of taxpayers’ money and most Australians have no idea what it does with it.

Australia’s sovereign wealth fund, created to pay superannuation pensions to public servants, has consistently beaten its target investment returns and can teach people some important financial lessons.

Number one is diversifying your assets, and looking beyond the obvious investments of shares and property that most Australians gravitate towards.

Less than 6 per cent of the Future Fund’s money sits in Australian shares while only 7 per cent is in property, according to its latest portfolio update.

Instead, it puts larger amounts into global shares, private equity, debt securities, infrastructure and even cash.

Another key lesson is looking long term and not making knee-jerk reactions to financial market volatility.

By thinking like the Future Fund or large super funds, small investors can avoid selling out at the worst possible time.

Midsec Financial Advisors Managing Partner, Nick Loxton said the Future Fund had an investment time frame spanning decades, and this could improve stability and financial returns.

“They can buy unlisted assets, take a 30-year view and not worry about it,” he said.

“Mums and dads will panic if something moves in a few months.”

“Another major difference is that for retail investors too much emotion gets in the way.”

“They are sometimes too sacred to take profit, what if it goes higher?”

“What about tax?”

“Then they ride it back down.”

“Even though they know they can’t pick the top and the bottom, they still seem to try.”

The Future Fund was originally set to start paying out money to retired public servants from 2020, but the Government has pushed that back to at least 2026–27.

AMP Capital Head of Investment Strategy, Dr Shane Oliver said the Fund’s long-term approach enabled it to invest more into private equity and large infrastructure assets.

“It’s more diversified than most investors would go with,” he said.

Dr Oliver said the fund also invested in more “real assets” that were not traded on financial markets.

“When markets fall like they did last year you are not exposed.”

The Future Fund puts four times as much money into global equities as it does in Australian equities.

“They have looked beyond Australia to see where the opportunities are,” Dr Oliver said.

“Many individual investors look to things they regard as familiar.”

The Future Fund does respond to market conditions.

In February’s update, Chief Executive Officer, David O’Neal noted “rising risks around the economic cycle and geopolitics”.

“We have continued to gradually reduce risk in the fund’s portfolio,” he said.

Where the future fund invests

  • Australian shares: 5.8 per cent of the fund.
  • Global shares: 23.6 per cent.
  • Private equity: 15.8 per cent.
  • Property: 7.2 per cent.
  • Infrastructure/timber: 8.5 per cent.
  • Debt securities: 10.1 per cent.
  • Alternative assets: 14.5 per cent.
  • Cash: 14.5 per cent.
  • Total assets: $147 billion

Investment returns

  • One year: 5.8 per cent (target 5.8 per cent).
  • Five years: 8.8 per cent (target 6.1 per cent).
  • Ten years: 9.7 per cent (target 6.6 per cent).
  • Since inception: 7.6 per cent (target 6.8 per cent).

Source: Future Fund

* Anthony Keane is Personal Finance Editor at News Corp Australia. He tweets at @keanemoney.

This article first appeared at www.news.com.au.

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