SMSF members can benefit from the higher levels of inflation currently pervading the Australian economy with the inclusion of alternative assets in their fund portfolios, a domestic wealth manager has said.
“Within the alternative asset class there are strategies where investment returns, particularly investment income, would be linked to inflation,” Wilson Asset Management (WAM) alternative assets portfolio manager Dania Zinurova told attendees at SMSF Trustee Empowerment Day 2024, co-hosted recently by smstrusteenews and the SMSF Association.
“An example of this would be some infrastructure assets because most of the time these assets would have long-term contractual revenues where revenues increase in line with inflation.”
Zinurova pointed out investor gains during inflationary times were not limited to infrastructure and that other sectors within the alternative asset class could also play a significant role in delivering this type of outcome.
“Some of the sub-sectors within real estate, such as healthcare, have embedded inflation links with income returns. Why? Well one of the hospitals included in the WAM alternative assets portfolio is Gosford Private Hospital and the lease is held by one of the major Australian healthcare operators, which is for 50-plus years. The rental increase on this lease is linked to inflation every year,” she noted.
She highlighted the significance of a strategy inclusive of an allocation to these types of items with a reference to the WAM alternative assets portfolio, revealing 75 per cent of the income component in the fund is linked to inflation.
“So during times like we are experiencing now, it is a good idea to look at these types of assets,” she suggested.
She also took the opportunity to clarify the assets WAM classifies as alternatives.
“When I talk about alternative assets, those are investments in tangible assets, tangible businesses or otherwise investments in asset-backed opportunities,” she said.
