Two of Australia’s biggest institutional investors have called current equity markets fair value despite a year-long spike in prices.
Both AustralianSuper and the Future Fund acknowledge the susceptibility of markets to bad news around high government debt in developed markets, but are not nervous about valuations.
Innes McKeand head of equities at Australian Super, said: “Equities are a little above long run averages of multiples (price to earnings), but they are not at extremes. While they look a little on the expensive side, they are not nearly as expensive as bonds look, in particular government bonds.”
He caveated these views by stating that investors should not get too excited for the prospect of economies “roaring ahead”, because of large debt to GDP ratios in Europe, the USA and Japan.
AustralianSuper is seeking to boost allocations to illiquid assets such as infrastructure and property, while also seeking bargains in bank loans and corporate lending.
David Neal, chief investment officer at the Future Fund, believes the current market, which he acknowledges has large structural imbalances caused by quantitative easing, is “reasonably” supportive of asset prices.
“We are neither aggressive or very defensive. We are not afraid of investing in this environment.”
The Future Fund currently has 9.6 per cent in cash, a figure Neal predicted would drop over the next year due to prior commitments.
The fund’s recent six month review of its investment outcomes told how it had repositioned to purchase attractively priced assets and shift allocation towards listed equities, private equity and infrastructure.
The fund has 43.2 per cent invested in equities, 7.2 per cent in private equity and 8 per cent in infrastructure and timberland.
Its returns are 8.2 per cent per annum over five years and 9.7 per cent over three years.
Innes McKeand will be talking on the subject of sentiment , values and macro investing at the Fiduciary Investors Symposium, at Peppers Moonah Links, the Mornington Peninsula on November 19. There are still places left for superannuation representatives and investment consultants, to register click here.
