He said the investment environment was “unpredictable” and that “the impact of rising interest rates is manifesting itself in different ways in different markets around the world.”
Arndt, who announced the quarterly results, said that with inflation and rising interest rates making market returns uncertain, funds are shifting “investments that rely on investor skill rather than market risk.” Stated.
He said Australian Financial Review Having reversed its bold decision six years ago to shift its entire exposure to the stock market to a low-cost index-tracking strategy, the fund is ready to help stock pickers once again.
He also warned that stagflation was a major problem facing global markets and that “inflation remains high and tenacious.”
“[But] The stock market doesn’t seem to worry about anything, so that’s also a concern.”
“In that world, you have to be careful with equity valuations.”
The Future Fund’s quarterly results showed investment in Australian equities increased by 0.4% year-to-date, while the level of exposure as part of the fund under management remained stable at 8.8%.
The allocation to developed market equities increased from 1.4% to 17%, while the allocation to emerging market equities increased by 0.3%.
inflation hedge
Dr Arndt said investors could instead look to commodities and bonds to protect their portfolios from inflation.
“What can we do in the afterlife? Commodity exposure, gold, and other inflation pass-through assets, we think are very attractive at the moment,” he said.
These assets were cheap to investors who believed inflation would stay high because the market as a whole “has a pretty good idea of inflation coming back to the banks,” he added.
“Commodities are a lot more expensive than they used to be given a prolonged period of stagflation, but they are still relatively cheap,” he said.
The Future Fund’s exposure to commodities is “fairly new” and the fund has only invested in the sector in earnest since 2020, when it “first started worrying about inflation,” said Dr Arndt.
real assets
But the Future Fund CEO faces ‘many challenges’ as he is nervous about the outlook for the real estate sector, despite traditionally suggesting that real assets offer a hedge against inflation. said it does.
This comes as a property appraiser warns that the value of key CBD office towers could fall by up to 20% in the coming months, with Superfund being told by regulators that it could be overstated. Concerns are putting pressure on us to improve the frequency and method of valuation of private assets. value of their real estate holdings.
Future Fund Deputy Chief Investment Officer Alicia Gregory also spoke at Alpha Live, suggesting that private equity is a real asset class that doesn’t mind delays in revaluation.
“You have a business and they continue to make record margins, record profits…they are the two main drivers of a company’s valuation, and valuation is its 2020 public market It didn’t go up as fast as ‘s valuation until 2023,” she said. “So the fact that they haven’t hunted them down probably shouldn’t surprise anyone.”
But valuations have to be “asset-specific” because there are still “ongoing divergences” in both the private and public markets, she said.
Dr Arndt added that the fund has a “variety of real assets” and is “working hard to grow it.”
Private equity exposure fell 1% to 16.4% in the quarter, while real estate and fixed income allocations fell 0.2% and 0.4% respectively, according to the fund’s latest performance. Its infrastructure and exposure to forests are unchanged.
