Endgame Training Course

Close this search box.

Fund profits from an addictive investment

THE taxpayer-owned Future Fund is profiting handsomely from tobacco investments, despite Canberra’s plain packaging laws.

As the High Court’s landmark ruling in favour of plain packaging triggered a slide in global tobacco stocks, latest figures show the fund’s tobacco shares, valued at $210 million, have delivered far higher returns than the overall fund.

The fund’s largest tobacco holding, a $55 million parcel of British American Tobacco shares, has returned 8.3 per cent a year since it was bought, figures published this month show.

A $48 million investment in American company Lorillard, which owns the Kent and Old Gold brands, has delivered bumper annual returns of 16.7 per cent.

Philip Morris shares, in which the fund has invested $44.8 million, have returned 15.7 per cent a year.

These returns are far higher than the fund’s average returns of 4.9 per cent a year since it was set up in 2006 to pay for public service pensions.

The investments are attracting growing criticism from health groups, and the High Court’s ruling on plain packaging has reignited the debate.

With tobacco companies vowing to fight plain packaging through other legal avenues, Greens Senator Richard Di Natale said it was hypocritical for the government to invest in tobacco.

‘In one way we’re helping fund this toxic industry to take legal action against us,” said Senator Di Natale, who has proposed a bill forcing the fund to sell its tobacco shares. ”It makes no sense whatsoever.”

The fund says its investments in 15 tobacco companies are allowed by its internal policies because tobacco is a legal product.

Global tobacco shares fell in response to Canberra’s plain packaging rules, but have remained popular with investors because their earnings are not affected by the economic cycle.

British American Tobacco stocks fell 2 per cent on Wednesday night, but are up 27.5 per cent for the year. Philip Morris was down 0.2 per cent but is up 34.6 per cent in the past year.

“Those stocks still have a defensive quality to their earnings in turbulent times, notwithstanding the sustained anti-smoking movement,” said CCZ Statton Equities director Dave Hofman.

Peter Warnes, head of equity research for Morningstar Australasia, said: “Why do people still think tobacco stocks are a good investment? Because nicotine is addictive.”

by Clancy Yeates National Times