Future coming up short

Published in the Geelong Advertiser, November 2014 by Dale Gillham

Australia's Future Fund was put in place to cover unfunded superannuation payments beyond 2020, and the fund has reported excellent returns for the past two years.

However, what is there to cheer about when the fund balance appears to still be behind the eight ball?

If you Google Australia's Future Fund you will be brought to the Department of Finance on the Government's website. The fund has targets to achieve for each financial year, which is the best estimate of the balance that the fund needs to reach to cover the current estimated value of unfunded superannuation liabilities moving ahead.

However, as at September 30, the fund held just $104.5 billion, while the target for the 2014 financial year is $119.4 billion, and I note that the target for 2015 is $123.7 billion. What does this mean?

Based on a simple check, and I'm not suggesting it is conclusive, the fund appears to need to generate around $19 billion in the next nine months to achieve the target for the 2015 financial year.

Therefore, from now until June 30, 2015, the fund needs to generate around 18.4 per cent, which is probably unlikely. While I applauded the decision in 2006 to establish the fund, it appears that you, the Australian taxpayer, may be asked to meet the shortfall.

So what do we expect in the market?

Unlike the Melbourne Cup, this week's rise on the Australian share market is almost a non-event. At the time of writing, the All Ordinaries Index had achieved a high of 5521 points, up only 16 points from last week's close, and appeared to be struggling at around the top level of my target zone at 5500 points.

I believe the rise can be attributed to investors attempting to take advantage of the recent rally by buying in late in the run.

What is interesting is how the market often attempts to hold up in the week of the Melbourne Cup, only to fall away within a week or two after the event. This would see our market come back for a couple of weeks to find support at around 5350 points or possibly 5300 points, as my previous analysis indicates, before rising to challenge the prior high. As we wait for the market to confirm its next move, patience is the word for all traders.

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