Add articles to your saved list and come back to them any time.<\/p>\n
The Future Fund has started preparing its $205 billion portfolio for a financial environment with higher inflation and warned other investors will need to follow its lead.<\/p>\n
Speaking at the Sohn Hearts & Minds conference on Friday, the Future Fund\u2019s chief investment officer Ben Samild said it had traded around $65 billion worth of its portfolio for assets with better protection against what is expected to be a long-term inflationary environment.<\/p>\n
<\/p>\n
Future Fund\u2019s Ben Samild is wary of an inflation future with higher inflation than what many are expecting. <\/span>Credit: <\/span>Renee Nowytarger<\/cite><\/p>\n \u201cWe thought we needed to start building a portfolio that was more resilient to that world. So that means we\u2019ve done about $65 billion of investing in things that we thought were less inflation resilient to things that are more inflation resilient,\u201d he said.<\/p>\n Both Samild, and Bridgewater Associates\u2019 investment veteran Atul Lele, warned that it is a very different environment compared to the recent decades of disinflation and low-interest rates, which favoured equities.<\/p>\n \u201cOver the last 40 years, you\u2019ve seen a pro corporate, pro liquidity, pro growth, disinflationary environment that\u2019s been hugely favourable to growth-sensitive assets, to equity-centric type portfolios,\u201d Lele said.<\/p>\n \u201cAnd when we play the tape forward and think about, \u2018okay, what\u2019s actually going to happen from here?\u2019 All of those dynamics are shifting \u2026 and that\u2019s the big risk that we see out there.\u201d<\/p>\n One of his big warnings has been the risk of a spike in US bond yields if their government has trouble finding buyers of its debt as the US budget deficit soars.<\/p>\n The US Federal Reserve and US commercial banks have been big buyers of US debt over the past few years, but they are both stepping out of the market.<\/p>\n \u201cThat\u2019s why we say the big problem is that you\u2019ve got all of this (debt) issuance coming, and you don\u2019t have a natural buyer there, at least not at the current level of yields,\u201d Lele said.<\/p>\n \u201cIt becomes an issue when investors are going to be demanding higher and higher yields to go and actually, to go and actually fund that US deficit.\u201d<\/p>\n For the Future Fund this could be advantageous if it is able to get a strong yield from something as relatively safe as US government bonds. And even higher yields from quality private debt.<\/p>\n \u201cIf I had to pick one thing tomorrow (to invest in) it would be reasonably safe, asset-backed or even investment-grade lending where I can get low double-digit returns at very, very little risk,\u201d Samild said.<\/p>\n It also means investors should be aware of the benefits of staying with the high cash yields, said Lele.<\/p>\n \u201cWhen we think about what\u2019s available for investors – in just staying out of assets and staying in cash – it looks pretty attractive today in cash. I don\u2019t think investors right now are being sufficiently incentivised to move away from it.\u201d<\/p>\n Even now, Australian investors can get an interest rate over 5 per cent from savings accounts which are effectively risk-free due to the government guarantee of deposits.<\/p>\n Markets this week enthusiastically welcomed news that US inflation was softer than expected last month, which fuelled bets the US Federal Reserve may be done with interest rate hikes.<\/p>\n Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.<\/i><\/b><\/p>\nMost Viewed in Business<\/h2>\n
From our partners<\/h3>\n