The Future Fund – A New Way to Boost Your Superannuation

Here’s a statistic for you.

As of June 2017 this year, there is a total of $2.3 trillion in superannuation assets in Australia. Up an impressive 10% from the year before.

9.5% of your annual salary is contributed to that. Every quarter. Without even thinking about it.

It’s partly why the superannuation industry in Australia is a gravy train for fund managers.

After all, that money has to be paid into a super fund somewhere. And most Australians end up in some sort of default balanced fund with one of the largest providers.

In spite of the fact that our superannuation is supposed to provide for us in our twilight years, very few of us take a proactive approach to managing it.

We know it’s something that we need to plan for, but chances are that it’s still a few decades away. So people don’t tend to make it a priority.

That’s part of the problem. The other disincentive is that there’s no immediate gratification. Superannuation isn’t like most other financial products — like say a credit card or bank loan — where you see what your money buys you straight away. Retirement saving is a multi-decade-long investment, so you often won’t know for many years what your money bought you.

When choosing where to put their retirement savings, most people look for the best performing funds in Australia.

Have a look at the chart below. SuperRatings shows you the 10 best performing funds, along with their return for last year, and the average return over five and 10 years…

Best Performing Australian Super Fund over 10 years

Best Performing Australian Super Fund 7-9-17

Source: The New Daily
[Click to enlarge]

Going back to 2007, the 10 best performing funds were returning between 5.2–6% per annum. And that includes the financial wipe-out that was the market crisis in 2008.

However, the best performing fund isn’t actually on the list…and, believe it or not, there’s a way you can follow their investment strategy.

Beating targets and the market

The Future Fund was the brainchild of former treasurer Peter Costello.

Back in the early 2000s, the then treasurer worked out that there were billions of dollars of future retirement payouts the government was liable for, and no money had been put aside to account for this.

Kicking off with $60.5 billion — taking some funds from the sale of Telstra Corporation Ltd [ASX:TLS] — the Future Fund was set up to ensure that public retirement needs were met. Today, the fund is more than double what is was 10 years ago, managing $133 billion in assets.

However, what few people realise is that the Future Fund is actually the best performing Super Fund in Australia. According to ChanWest, the Future Fund has returned 7.8% per annum since 2007.

That’s well above the best returning funds in Australia. None of which have cracked above the 6% mark in the same timeframe. But it’s all the more impressive when you remember that this 7.8% return was achieved during the financial crisis. The very same crisis that saw the S&P/ASX 200 fall 53% from peak to trough.

To boot, the fund has consistently bettered their return-on-investment targets since 2006.

Future Fund return-on-investment targets 7-9-17

Source: Sydney Morning Herald
[Click to enlarge]

How do they do it?

For starters, Costello set it up so the best investment professionals were in charge. Rather than a bumbling group of bureaucrats.

Furthermore, the fund keeps a 20% allocation to cash assets. While cash assets have low returns at the moment, it enables the fund to be nimble and capitalise on emerging opportunities in the market.

Perhaps more importantly, one of the keys to its investments is that it keeps a relatively low investment in Australian equities.

Check out how they spread their investments around.

Future Fund investments spread 7-9-17

Source: Sydney Morning Herald
[Click to enlarge]

Rather than follow the lead of most Aussie super funds by whacking your money in banking and large cap mining stocks, the Future Fund doesn’t. In fact, roughly 6% of the Future Fund has its money in Aussie shares. Amounting to roughly $8 billion in investments, stocks are the Fund’s smallest holding.

So how does the Future Fund generate this level of return? There are ways you can mimic this performance for yourself. Click here to see how incorporating the Future Fund’s investment philosophy could potentially work for you.

Kind regards,

Shae Russell,
Editor, Markets & Money

Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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