Strong first quarter buoys Future Fund

The government-owned fund reached a peak of $77 billion in March after growing 5.4 per cent in the first three months of the year. It lost $37 million in the June quarter and in the first half of the financial year, but still finished with an annual return of 2.1 per cent. The median balanced superannuation fund returned just 0.4 per cent and top quartile of funds returned 1.1 per cent in 2011-12, SuperRatings says.

However, the Future Fund is not directly comparable to super funds because it has the sole purpose of covering the government's pension liabilities for public servants and the Defence Force after 2020.

The latest portfolio update shows the Future Fund has just a third of its money sitting in the stockmarket, with the managing director, Mark Burgess, saying there were still unresolved issues affecting confidence in global markets.

The fund has reduced its cash holding to just over 10 per cent of its $77 billion assets, while increasing its investments in private equity, property and timberland assets. The fund cut its investment in emerging markets from $4.2 billion at March 30 to $3.8 billion, and cut its investment in Australian shares from $8.4 billion to $7.9 billion by June 30. It has $13.4 billion in developed markets, or 17.5 per cent of total assets.

"During the financial year, investment markets were challenging as the situation in Europe and the US, combined with slowing growth in emerging markets, resulted in market corrections," Mr Burgess said in a portfolio update. "While market confidence returned during the year, as central banks provided greater monetary accommodation, the investment environment remains uncertain with a number of underlying issues still to be resolved."

The single biggest allocation of $14.6 billion is in alternative assets managed by a range of international hedge funds, commodity traders and other fund managers, mostly located in Britain and the US. Investment in debt securities have fallen from a high of 25 per cent at the end of 2009 to 18.3 per cent.