Future Fund posts 14.3pc return in 2019

The Future Fund’s healthy 2019 result still fell short of the ASX200’s return, as it warned ‘risks remain’.

Future Fund chairman Peter Costello believes prospective returns will be lower than recent returns. Picture: Josie Hayden

Australia’s sovereign wealth fund, the Future Fund, has grown by $21 billion over the last year following a healthy 14.3 per cent annual return, as low interest rates boosted equity markets.

In an update of the Peter Costello-chaired fund on Tuesday, the Future Fund at the end of December 2019 had grown to $168bn. That’s an increase of $107bn over the initial $61bn seed capital handed over to the Future Fund by the Howard government in 2006.

Over the last 10 years, the fund has achieved an average return of 9.9 per cent a year, surpassing its benchmark target of 6.4 per cent per annum.

But despite the 14.3 per cent return over the last calendar year, the Future Fund still fell short of the 23.4 per cent return clocked by the ASX200 over the same period.

“Equity markets performed strongly in the last quarter, supported by easy monetary policy,” Mr Costello said. “It is important to assess which asset values are supported by earnings as opposed to those supported merely by cheap money,” he said.

“Looking forward, a number of risks remain. Global debt levels and demographic pressures will shape economies and markets over the medium to long term. We maintain our long-held view that prospective returns will be lower than recent returns.”

Over the last year, the Future Fund has increased its exposure to Australian shares, rising from 5.8 per cent of the portfolio to 7.1 per cent.

The Fund has trimmed its exposure to property investments, down from 7.2 per cent of the portfolio to 6.3 per cent.

Meanwhile, debt securities have shrunk from 10.1 per cent of the portfolio to 8.6 per cent over the last 12 months.

Cash holdings have slightly shrunk from 14.5 per cent of the portfolio to 13.7 per cent over the last year. However, cash holdings have risen over the last quarter, after falling to 11.4 per cent by the end of September last year.

Future Fund chief executive David Neal said the fund was “carefully positioning the portfolio to navigate the challenging investment environment”.

“We are maintaining an average level of risk in the portfolio, sitting around the middle of the expected range. We continue to prioritise portfolio flexibility to ensure we can adjust the portfolio quickly to respond to emerging opportunities and risks,” Mr Neal said.

“We are also focused on identifying and taking advantage of our managers’ skill so that we can add additional return or reduce risk. This includes our focus on strategies that have low correlation with risk assets,” he said.