Index-Heavy SWFs Seek Spots Where Stock Picking Can Win

October 27, 2014 by David Turner

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In 2010, Australia’s Future Fund wanted to tackle a new investment theme: the growing buying power of consumers in countries like Brazil, China and India. "We were trying to target the emerging middle class," says Elspeth Lumsden, head of equities at the $95.2 billion sovereign wealth fund. "Not just consumption but also food processing, agriculture and financial services." Because of the diversity of the stocks involved, from multinational cosmetics companies to local banks, the fund found this a difficult area to tap. "We wanted to get exposure to that [theme] regardless of the domicile of the company because you don’t know whether local players or multinationals will be the winner in any particular market," Lumsden says. For the Future Fund, that meant managing the money actively rather than passively, which is typically through low-cost index-based strategies. Despite the wide use of passive equity strategies at sovereign wealth funds,…

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