With the Reserve Bank cutting the official cash rate by 25 basis points to 1.25 per cent, and another interest rate cut looking imminent, asset allocation again becomes a very important focus. The aim is to balance risk with income and capital appreciation.
As another aspect of the yield story, the Future Fund, together with many other industry funds, holds high levels of illiquid investments — in many cases more than 30 per cent. (Illiquidity means there may be difficulty in buying or selling the asset quickly). There is no doubt this has had a positive effect on returns.
I have also been a strong proponent of illiquid investments for the right clients. They are those who both understand what they are investing in, and who also have tolerance for illiquid investments. (We have worked closely with our asset allocation consultants, Heuristic Investment Services, to ensure we have constructed asset allocation bands that ensure risk and return is balanced.)