Hollywood starlets aren’t normally considered investment savvy.
More to the point, Aussie investment firms aren’t normally associated as being in business with Hollywood stars.
At some point in the past few years, a couple of insightful Aussie fund managers decided to throw a chunk of money in the direction of a Hollywood A-lister.
In 2008, American actress Gwyneth Paltrow launched an obscure website called Goop. At the time, Paltrow claimed it was a lifestyle website that would help her to share tips, recommendations and fashion trends with her fans.
Last year, Goop received a US$15–20 million (AU$18.6–24.8 million) injection of venture capital from an Aussie fund. And it’s now taking a stab at the US$36.7 billion (AU$45.5) online US vitamin business.
Investing outside the box
Few people outside investment circles know of the Future Fund.
Realising the government had a bunch of commonwealth pension liabilities coming up — and no way to fund them — former Treasurer Peter Costello set about finding a way to correct this.
In 2006, Australia’s sovereign wealth fund, the Future Fund, was born. Some $60 billion was put in to kick-start the fund. A portion of capital from the sale of Telstra Corporation Ltd [ASX:TLS] helped swell the coffers.
11 years since its creation, the Future Fund has grown to manage assets over $133 billion. In fact, it’s now the best performing retirement fund in Australia.
The retirement pot has been doubled, not least because the Future Fund has returned 7.8% a year since 2007. In comparison, the top 10 best super funds in Australia have averaged a return between 5.2% and 6% in the past decade.
Why is the Future Fund outperforming other funds so handily?
It’s because it takes a completely different approach to what mainstream funds do.
Two-thirds of Australians find themselves lumped into industry or bank-owned funds. This is partly because of employer or union-related deals, and the fact that many of us are too lazy to shop around.
These funds are incredibly limited in where they can invest the $2.3 billion of retirement wealth. Meaning many of us with standard retirement pots are funnelled into bank, mining or consumer stocks.
In other words, there’s little room for mainstream fund managers to look for new ways to invest and grow wealth.
Yet the Future Fund isn’t bogged down by the same limitations.
Take a look at where the Future Fund invests…
Source: Sydney Morning Herald
[Click to enlarge]
The Future Fund has almost a quarter of its assets in global equities, while maintaining only 6% exposure to the Australian stock market. Plus, it keeps a solid 20% aside in cash.
The cash stores are partly to do with the globally low interest rate environment. The Fund holds the view that if interest rates start rising, share prices will fall. Also, because of the exposure to many different sectors of the global markets, the cash acts as a counterweight to the fund.
But what’s most interesting in my view is the ‘private equity’ allocation.
Most people aren’t aware that the Future Fund has been experimenting with venture capital markets.
Where does the Future Fund invest?
Over the past couple of years, the Future Fund has put money into New Enterprise Associates — which subsequently bought into Goop and BuzzFeed. This was followed by putting cash into Bessemer Venture Partners, which has an interest in Pinterest. Not only that, but the Future Fund gained exposure to Snap Inc. [NYSE:SNAP] by investing with Lightspeed Venture Partners.
Raphael Arndt, the chief investment officer of the Future Fund, says there’s only about $5 billion wrapped up in venture capital, but that this is an important sector of the market. To date, it’s one of the strongest performers in the portfolio, averaging a return of 20% per year after fees.
As Arndt told The Sydney Morning Herald, ‘It does more than just make returns for us. It gives us insight into these disruption trends that we wouldn’t other know about…and insight into what’s going on in the world that people who sit in high rise office towers might not know, this is impacting the societies and economics operate, and impacting the rest of our portfolio.’
Arndt also points out that the performance of venture capital isn’t tied to the broader market; should property or shares decline, there’s no correlation to suggest this sector of the market will as well.
It’s this unique approach to investing that caught Total Income editor Matt Hibbard’s attention. Matt realised a few years ago that investors can mimic ‘outside of the box thinking’ and generate consistently similar returns to the Future Fund.
Although, as Matt points out, you don’t have to do it through a retirement fund; there are ways to take advantage of this through the Australian market too. This way, you don’t have the hassle of setting up an international stock broking account, or the complicated currency risk that comes with international investing.
Even though the Future Fund is comfortably beating other retirement funds in Australia, Matt has found one stock that has more than doubled that benchmark. As his analysis shows, it hasn’t just done so for a year or two, but for nearly two decades.
This stock is just one of seven that could help get your own Future Fund portfolio off the ground. Details here.
Editor, Markets & Money