(Bloomberg) -- Australia's sovereign wealth fund has trimmed its stock exposure in anticipation the removal of stimulus by central banks will cause more volatility and warned rising inflation could mean returns are tougher to generate.
Stock holdings fell to 31% from 33% in three months to Dec. 31 as it increased cash, according to a statement Tuesday. The fund returned 19.1% in 2021, its best calendar year performance, lifting assets to about A$204 billion ($144.2 billion).
“We have taken some risk off, particularly in the listed equities program, given the run-up in prices and our view is that risk is likely to be less well-rewarded in future,” chief executive Raphael Arndt said in the statement. “In response we are seeking out opportunities to access value from less liquid and more skill-based investments.”
The shift comes as the Future Fund echoes warnings from peers including Norway's sovereign wealth fund, the world's biggest, in anticipating more market volatility and lower returns as consumer cost pressures persist. Total equity allocation is about 1.1 percentage points below the same time last year as the fund shifted more into private market assets.
Returns will be lower in future years as markets head into an uncertain environment as the period of “exceptional stimulation through monetary policy” will have to end, Chairman Peter Costello said in the statement.
“The biggest challenge for investment at present is rising inflation, rising interest rates and the effect these will have on asset prices,” he said.
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