How Everyday Investors Are Piggybacking the Future Fund

If you had to guess, would you know which sovereign wealth fund is the biggest in the world?

At a hunch, you’d probably guess it to be one of the oil rich states. Like Saudi Arabia, the United Arab Emirates (UAE), or maybe Kuwait.

If you went with oil, you’re right on the money. Of the five largest sovereign funds in the world, four trace their wealth directly to oil.

The only one that doesn’t is China. The China Investment Corporation sits in third place, with just over $800 billion in funds.

However, China might argue the result. Add in two of its other sovereign funds, and this quickly jumps to over US$1.5 trillion.

While the above-mentioned Arab States are in the top five, there’s another oil rich country that sits at the top of the heap.

If you don’t know yet, that country is Norway.

With just over five million people, Norway’s population is barely bigger than Sydney or Melbourne. Yet with funds of US $1 trillion, its Government Pension Fund is around $200 million bigger than its nearest rival.

Founded in 1990, Norway’s sovereign fund has a massive $650 billion invested in equities around the world. Think Apple, Alphabet (owner of Google), Nestle and Microsoft. All up, it has investments in around 9,000 companies, spread across 77 countries.

It invests another US $320 billion in bonds, with only a smattering (US $2–3 billion) in real estate.

If Norway’s sovereign fund only ever looked at home, it would quickly run out of places to invest. The Oslo Stock Exchange only has around 220 listings.

What Norway realised early, and other sovereign funds too, is that you can’t rely only on domestic markets to generate returns.

A decade of outsized returns

While it’s still only a fraction of the size of Norway’s, there is another sovereign fund racing up the list. Barely in the race a few years ago, Australia’s Future Fund has generated a decade of outsized returns.

As I wrote in yesterday’s article, the Future Fund only started in May 2006. At the time, the government put in just over $60 billion.

In only 10 years, however, the fund has grown to $133 billion. And all this without a single additional cent from the government.

What the Future Fund does is different to the way many funds invest. Rather than put big chunks of money into the local market, like Norway, it takes a bigger view.

In fact, as of June this year, the Future Fund only had 6% of its funds invested in Aussie stocks. That’s less than one-third of the amount it has in international shares. What’s more, Aussie stocks are its smallest holding.

For local investors, used to investing in local bank and mining stocks, this might seem unusual. Probably not the way they’d invest themselves.

But in doing so, the Future Fund has well and truly beaten its benchmark. And as its recent results showed, has done so every year since it started.

Since inception, the Future Fund has generated a 7.8% return per annum. That’s well above its target of 6.9%.

However, over the last year, its results have been even more impressive. Generating 8.7%, the Future Fund beat its 6.4% target by an impressive 2.3%.

That’s a great result, considering the huge amounts involved. Just that outperformance is worth an extra $2–3 billion per year. Even more impressive is that it generated this return with over 20% of its holdings sitting in cash.

And if the Future Fund continues with its stellar returns, it could continue its rise up the sovereign wealth list. Who knows, within a decade it could be knocking on the door of the world’s top 10.

That’s if the pollies don’t get their hands on it.

How you can piggyback the Future Fund

The good news, however, is that you too can ‘piggyback’ the Future Fund. Eventually the Future Fund will have to start taking money out to meet the superannuation commitments of the public servants it serves.

However, as a private investor, you get to decide when to put your money in…or take it out. What’s more, you can run a Future Fund style portfolio in addition to your own superannuation fund. You can even use it if you don’t have a superannuation account.

I’ve prepared a special report which shows you where the Future Fund invests its money. What this report also shows you is how you can replicate its holdings — all through the ASX.

And while the Future Fund has beaten its benchmark comfortably, there’s one stock I’ve included that has more than doubled its benchmark. Not just for a year or two, but for almost two decades.

This stock is just one of seven you can check out in my special report. To find out how you can piggyback the Future Fund, please click here.


Matt Hibbard,
Editor, Total Income

While many investors chase quick fire gains, Matt takes a different view. He is focused on two very clear goals. First: How to generate reliable and consistent income in a low-interest rate world. And second, how you can invest today to build wealth over the next 10–15 years. Matt researches income investments. You can find more of Matt’s work over at Total Income, where he is hunting down the next generation of dividend-paying companies for the future. He is also the editor of Options Trader, where he uses basic options strategies to generate additional streams of income beyond the regular dividend payments. Having worked for himself and with global firms for almost three decades, Matt has traded nearly every asset in existence. But now he is on a very different mission — to help investors generate income irrespective of what the market is doing. It’s about getting companies to pay you a steady, stable income, with minimal stress and the least risk possible. Matt doesn’t believe you have the luxury of being a bull or a bear in the market right now. You have to earn an income from it, regardless of whether stocks are going up or down. By getting the financial markets to pay you an income, you can get to focus on more important things than just money.

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