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A Simple Portfolio Analysis of the Future Fund

February 1, 2010 michael Leave a comment

On Friday the Future Fund published its asset allocation as at 31 December 2009. Before we jump to any conclusions about its make-up its important to understand what the investment objectives are…

CPI plus 4.5% to 5.5%pa over a rolling ten year period with an acceptance of short term underperformance whilst the Strategic Asset Allocation is being developed

The asset allocation of the future fund as at 31 December 2009 is…

Australian Shares – 12.7%
Global Shares (developed) - 24.0%
Global Shares (emerging) – 3.6%
Private Equity – 2.3%
Property – 2.9%
Infrastructure – 2.4%
Debt Securities – 25.4%
Alternative Assets – 11.4%
Cash – 15.5%
plus Telstra

One can only assume that given the return benchmark, the allocation to cash will continue to diminish (it went from 32% to 15% in one quarter) and the ultimate fund will be relatively aggressive. What any investor can learn from this current asset allocation is the level of diversification across asset class…certainly high.

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RBA Rate Rise tomorrow? Odds on

February 1, 2010 michael Leave a comment

Australian Government Bond Yields – 29 Jan 2010

Source: Bloomberg

The RBA Cash rate is currently at 3.75% and with government backed 30 day bank bills at 4.12% and the recent tender of 23 March 2010 Treasury Notes fetching a yield of ~3.96% the financial markets are pretty much expecting a 25bps increase.

Whilst the sharemarkets have had the jitters whereby the ASX200 has dropped in excess of 6% this year, it is only government bond with a maturity greater than 1 year whose yields have dropped. The shorter term rates haven’t dropped much at all as the market continue to believe that 2010 will be a year of rising RBA rates.

As for the chart above…it doesn’t really reflect too much of what I’ve said and actually contradicts the 3 month rates I quoted earlier…my only comment is…what’s going on with Bloomberg such that it quotes 3 month Treasury Notes at 3.75%??? Might be best to double check rates from different sources before accepting them.