As an S&P/ASX 200 Index (ASX: XJO) investor, it can pay to keep an eye on the investing strategies employed by the Future Fund.
Australia's sovereign wealth fund gained 10.1% over the 12 months to the end of March, with the portfolio hitting an all-time high value of $223 billion.
The Future Fund achieved those impressive results, in part, by adjusting its investment strategies to incorporate the outlook that inflation and interest rates are likely to remain higher for longer than previously expected.
Here's what ASX 200 investors can learn from the Future Fund's shift in focus.
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ASX 200 investors facing sticky inflation
As The Australian reports, the Future Fund has been upping its exposure to both ASX 200 and international shares. The fund is also adding to its credit investments, with expectations that sticky inflation will result in equally sticky interest rates.
"The global economy is in good shape, better than expected this time last year, thanks to the strength of the US economy," Future Fund CEO Raphael Arndt said.
Arndt added:
Markets have priced in this economic resilience and expectations of several rate cuts in Australia and the US before year end. But as we have been saying for some time, inflation remains sticky and while it remains above central bank targets the risk is that rates will be held higher for longer.
Arndt cautioned that many ASX 200 investors still haven't come to grips with the changing outlook for inflation and interest rates.
"While markets have begun to price in this risk since the end of the quarter, investors have not yet fully adjusted to this view," he said.
Indeed, as we reported here earlier today, analysts are increasingly eyeing the potential of further interest rate hikes from the RBA in 2024 rather than cuts.
As if these concerns weren't enough, Arndt added, "Any increase in conflicts risks adding further to inflationary pressures. Investors need to be alert to these dangers and retain the flexibility to respond quickly."
Commenting on the Future Fund's investment focus, chief investment officer Ben Samild said (quoted by The Australian):
Conditions for risk assets continued to be favourable through the quarter, with growth and inflation stronger than had been expected. Over the past year we increased our risk exposure to take advantage of those conditions…
We continued to add to credit investments as the persistence of higher growth and rates makes for attractive risk-adjusted long-term returns from this sector.
And for ASX 200 investors wishing to mimic Australia's sovereign wealth fund, in the first three months of 2024, the Future Fund reduced its property holdings by $823 million and increased its private debt holdings by $2 billion.
The fund also upped its holdings of developed market stocks by $7.6 billion.
ASX stocks also benefited, with the Future Fund adding $2.0 billion of ASX shares over the quarter. That sees ASX shares accounting for 10.1% of the portfolio.
