Industry superannuation fund Westscheme will invest in fixed income, an asset class the fund has ignored for a decade.

The Western Australia-based fund planned to invest in Australian and overseas fixed income, Westscheme chief executive Howard Rosario said.

"We have decided to hold 5 per cent of our portfolio in fixed income. The increase in allocation will be at the expense of listed equities," Rosario said.

The move to fixed income follows a decision by the fund to establish a new strategic asset allocation (SAA) for its market and target return portfolios.

Under the revised SAA, the market portfolio will hold 57.5 per cent of the fund's assets and 42.5 per cent will be held in the target return portfolio.

The original allocation was 55 per cent to the market portfolio, which includes investments in listed Australian and international equities and emerging markets. Forty-five per cent was previously held in the target return portfolio. The target return portfolio includes investments in property, private equity, infrastructure and high-yield debt, including collateralised debt obligations (CDO).

The change in investment strategy was a result of market movements, Rosario said.

"Our target return portfolio was hit not as much by recessionary pressures but by the credit crunch. Even though the risk rate has dropped, the discount rate had risen significantly because of the concerns about refinance and the expected decline in economic growth," he said.

"We are going to buy other assets in the portfolio that won't have this exposure to economic growth."

Westscheme will be looking to buy more credit-type securities.
 
The fund continued to hold its CDOs, although they had been "effectively wiped out in value", Rosario said.

Following the fund's experience with the global financial crisis, it has reduced its drawdown exposure.

This would effectively push the fund to greater diversification in its target return portfolio in the future, Rosario said.