Should ASX 200 investors copy the $223 billion Future Fund's sticky inflation strategies?

Facing sticky inflation, ASX 200 investors are eyeing the Future Fund's shifting strategies.

A businessman keeps calm in the face of inflation

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As an S&P/ASX 200 Index (ASX: XJO) investor, it can pay to keep an eye on the investing strategies employed by the Future Fund.

Australia's sovereign wealth fund gained 10.1% over the 12 months to the end of March, with the portfolio hitting an all-time high value of $223 billion.

The Future Fund achieved those impressive results, in part, by adjusting its investment strategies to incorporate the outlook that inflation and interest rates are likely to remain higher for longer than previously expected.

Here's what ASX 200 investors can learn from the Future Fund's shift in focus.

ASX 200 investors facing sticky inflation

As The Australian reports, the Future Fund has been upping its exposure to both ASX 200 and international shares. The fund is also adding to its credit investments, with expectations that sticky inflation will result in equally sticky interest rates.

"The global economy is in good shape, better than expected this time last year, thanks to the strength of the US economy," Future Fund CEO Raphael Arndt said.

Arndt added:

Markets have priced in this economic resilience and expectations of several rate cuts in Australia and the US before year end. But as we have been saying for some time, inflation remains sticky and while it remains above central bank targets the risk is that rates will be held higher for longer.

Arndt cautioned that many ASX 200 investors still haven't come to grips with the changing outlook for inflation and interest rates.

"While markets have begun to price in this risk since the end of the quarter, investors have not yet fully adjusted to this view," he said.

Indeed, as we reported here earlier today, analysts are increasingly eyeing the potential of further interest rate hikes from the RBA in 2024 rather than cuts.

As if these concerns weren't enough, Arndt added, "Any increase in conflicts risks adding further to inflationary pressures. Investors need to be alert to these dangers and retain the flexibility to respond quickly."

Commenting on the Future Fund's investment focus, chief investment officer Ben Samild said (quoted by The Australian):

Conditions for risk assets continued to be favourable through the quarter, with growth and inflation stronger than had been expected. Over the past year we increased our risk exposure to take advantage of those conditions…

 We continued to add to credit investments as the persistence of higher growth and rates makes for attractive risk-adjusted long-term returns from this sector.

And for ASX 200 investors wishing to mimic Australia's sovereign wealth fund, in the first three months of 2024, the Future Fund reduced its property holdings by $823 million and increased its private debt holdings by $2 billion.

The fund also upped its holdings of developed market stocks by $7.6 billion.

ASX stocks also benefited, with the Future Fund adding $2.0 billion of ASX shares over the quarter. That sees ASX shares accounting for 10.1% of the portfolio.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Growth Shares

3 ASX 200 stocks I'd buy and hold for the next 10 years

Looking for stocks to hold onto for the long term. These three could be just the ticket according to analysts.

Read more »

Calculator and gold bars on Australian dollars, symbolising dividends.
Dividend Investing

 2 ASX dividend shares worth their weight in gold

Analysts rate these income options very highly. Let's find out why.

Read more »

A woman presenting company news to investors looks back at the camera and smiles.
Cheap Shares

2 ASX value stocks I'd buy now and hold for a lifetime

These value stocks have become even cheaper in recent months...

Read more »

Person holding Australian dollar notes, symbolising dividends.
Share Market News

5 ASX dividend shares to buy and hold for the next 20 years

Analysts think these shares could be great long term picks for income investors.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Growth Shares

What I'd buy before the ASX rebounds: 3 high-conviction share picks

Analysts think these shares are strong buys before the market rebound.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Blue Chip Shares

3 quality ASX shares to buy before the market rebounds

These shares are highly rated by analysts. Let's see why they are bullish.

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Dividend Investing

This dirt cheap ASX stock offers a stunning 11% dividend yield

Big money could be made from this dividend stock according to Goldman Sachs.

Read more »

Piggybank with an army helmet and a drone next to it, symbolising a rising DroneShield share price.
Defensive Shares

The BetaShares Global Defence ETF (ARMR) is up 19% this year. Are defence stocks the new safe haven?

Defence stocks could be the new gold.

Read more »