Future Fund weighs up tobacco shares THE Future Fund will soon decide whether to continue holding shares in tobacco companies as part of a review of controversial investments in its $80 billion-plus portfolio. The fund's governance committee has been debating whether it should keep investing in tobacco companies, according to managing director Mark Burgess, and was expected to make a decision in the "early part of this year." "We have not said we are going to exclude tobacco, we are just thinking about it," he said. The Future Fund's regular quarterly update released on Tuesday showed overall investments returned 12.8 per cent in 2012, increasing the portfolio from $73 billion to $82.4 billion. This was one of the fund's best performances and a major improvement after returning just 2.1 per cent in the 12 months to June 2012. It matches the median return of 12.7 per cent across industry and retail balanced superannuation funds, according to a Mercer investment survey. It invests between $230 million and $250 million in tobacco companies and tobacco-related industries. In 2011 the fund stopped investing in companies that build cluster bombs and landmines, but was still involved in the broader "armaments industry," Mr Burgess said. The decision to stop investing in the bombs was driven by the Australian government signing up to the global Convention on Cluster Munitions, which comes into effect in April. Mr Burgess also dismissed criticism the fund had overvalued capital city airports in its $2 billion bid for Airport Infrastructure Fund. Co-investors in AIF, who have a right to bid before the Future Fund, have accused it of putting airports out of reach. Mr Burgess said all parties were going through a natural competitive process. Meanwhile, the outlook for stability in global markets would depend on the European Central Bank continuing to "do whatever it takes" to stabilise and restructure the eurozone, and how governments unwind their unusually low interest rates. Chief investment officer David Neal said: "In that context we think markets are reasonably priced, [but] we don't see too many screaming bargains any more. [There is] lots of capital flowing into markets, in particular flowing into the tangible assets markets and it has become very very competitive. The fund was now well diversified after starting its investment portfolio during the global financial crisis and with 2 billion Telstra shares, which have now been mostly sold off. The largest allocations at December 2012 were to debt securities (19 per cent), developed markets (18 per cent), alternative assets (16 per cent) and Australian markets and cash (11 per cent and 10 per cent). Mr Neal said the fund would increase its weighting towards private equity and tangible assets - property and forestry - as it matures and decrease debt and cash.