The Future Fund, Australia’s sovereign wealth fund, outperformed most of the market in 2015 and is now holding one-fifth of its portfolio in cash.
The fund returned 8.4% in the 12 months to the end of December. According to analysts SuperRatings, the median balanced option in a super fund returned 5.6% in calendar 2015.
The level of risk in the portfolio was gradually reduced last year to the point where it now has $24.445 billion in cash looking for an investment vehicle to create returns.
What the fund will do with the cash buffer, and when, isn’t clear.
But the fund has warned of instability on financial markets, and potentially lower returns, ahead from the unwinding of economic stimulus and the eventual rise of interest rates from record lows.
“In addition to reducing our global equity exposure we have also rebalanced our private equity portfolio locking in some of the strong gains which had been achieved,” says David Neal, managing director of the Future Fund, in a portfolio update.
“This has contributed to the rise in our cash holdings.”
The fund, now valued at $118.4 billion, is holding 20.6% of its portfolio in cash, up from 12.8% a year ago.
Australian equities are 6.5% of the fund, down from 8.8%.
Here is the breakdown of assets allocations:
Peter Costello, the fund chair and a former federal treasurer, says the rise in asset prices has been driven by record low interest rates.
And withdrawal of monetary stimulus, with a gradual rise in interest rates, will likely see returns lower than in recent years.
“We have also been conscious of the risks across markets as central banks adjust their policy settings and as policy makers attempt to generate sustainable growth,” says Costello.
“This outlook means greater volatility and lower prospective returns and we have been adjusting the portfolio accordingly.”