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Future Fund misses big gains with Telstra sale

The Future Fund has released its portfolio update for March and overall it is an impressive result, with the fund gaining 3.4% for the quarter and increasing 10.6% for the nine months to 31 March 2013. Since being created by the Howard government in May 2006, the Future Fund has returned a respectable 5.7% per annum.

Over the period since its establishment the Future Fund also achieved a more balanced allocation of assets compared with what was initially a significant skew to  domestic equities. This was partially due to the fund’s seeding with Telstra (ASX: TLS) shares.

Today, the fund is roughly 12% Australian equities, 24% global equities, 7% private equity, 13% property, infrastructure and timber, and 45% cash, debt securities and alternative assets.

The recent acquisition of a number of the assets owned by Australian Infrastructure Fund (ASX: AIX) has added a number of high quality infrastructure assets to the portfolio and will further boost the asset exposure to this segment. The Future Fund also has a substantial shareholding in toll road operator Transurban Group (ASX: TCL).

The smart money doesn’t always get it right

While there are reasons to congratulate the mangers of the Future Fund, consider the profits missed by the untimely sale of Telstra shares.

In February 2007, the fund received 2.1 billion Telstra shares (approximately 16.4% of the company) that were under escrow until November 2008. At the time, the shares were trading a little under $5. In August 2009 in one fell swoop, the fund offloaded about 684 million Telstra shares (representing around 34% of its holding) at a price of $3.47. Then in October 2010, the fund sold another 113.6 million Telstra shares, this time at an average price of $2.66, reducing its holding in Telstra to 10%.

In March 2011, while the shares were still not far from their lows, the fund announced it had sold half of its remaining holding, or 620 million shares, taking its holding in Telstra to just 5% of the company. With the shares barely over $3, the fund continued to sell, reducing its holding by August 2011 to 100 million shares or approximately 0.8% of Telstra.

With the shares now at $5.07, even assuming a $3.47 average sale price, which is far above what the fund actually realised, the foregone capital gains stand at over $3.1 billion!! This doesn’t even include the foregone dividends, which are significant given Telstra’s high yield.

charttls

Source: Google Finance

Foolish takeaway

Trying to time your entry and exit from the market is often a painful exercise, with the price going lower than what you paid and higher after you sold. Next time you feel annoyed by your bad timing, spare a thought for the “smart money” over at the Future Fund.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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