In part I, we looked at the basics of what a diversified portfolio might contain.
In part II, we'll look at which securities you could invest in to replicate exposure to a few of the smallest asset classes.
Now, AustralianSuper's Balanced fund has returned 9.7% annually since its inception in August 1985, although it has had its ups and downs, including a fall of 13.3% in 2009. Which partly goes to show the benefit of diversifying across asset classes, limiting the damage to a small part of the whole portfolio. 9.7% per year is nothing to sneeze at, particularly considering some of the low returns from some asset classes, and volatility in others.
The downside is that you are limited in the gains you can make when one asset class, such as shares, takes off.
So, here's the table again as a reminder of what we are trying to replicate.
| Asset Class | Fund weighting | Target band |
| Private equity | 3% | 0–10% |
| Cash | 3% | 0–15% |
| Direct property | 9% | 0–30% |
| Fixed interest | 10% | 0–25% |
| Infrastructure | 13% | 0–30% |
| Australian shares | 31% | 20–45% |
| International shares | 31% | 10–40% |
Source: AustralianSuper
Now let's look closer at the asset classes – going from smallest to largest.
Private equity
While AustralianSuper invests 3% in private equity, there's not many, or should I say hardly any, private equity companies listed on the ASX. One company we might consider is Blue Sky Alternative Investments Ltd (ASX: BLA) or its listed fund, Blue Sky Alternatives Access Fund Ltd (ASX: BAF).
Bear in mind that we are not considering valuations or whether these are quality companies or not at this stage.
Cash
For cash, that should be fairly simple. You can hold cash under your bed, in a safety deposit box, in a bank account, in a term deposit, or you could buy shares in Betashares Australian High Interest Cash ETF (ASX: AAA) which has returned 3.3% over the past 12 months, by investing funds in high-interest deposit accounts.
Property
For direct property, you could consider any investment properties you own, the house you live in – if you have a mortgage, or you could consider the Vanguard Australian Property Securities Index ETF (ASX: VAP), which invests in Australian real estate investment trusts (A-REITs) listed on the ASX, giving investors exposure to retail, office, industrial, tourism and diversified property sectors. You could also invest directly in Australian property stocks – such as Westfield Corp Ltd (ASX: WFD) and Scentre Group Ltd (ASX: SCG).
That should give you some ideas. Don't miss Part III, where we'll take a closer look at the remaining asset classes.
