Lauren Ryan from Thinktank speaks to Laurence Parker-Brown for our IN60 series. The Inside Adviser
That consumers are influenced heavily by well known, trusted brands comes as no great surprise. What does, though, is that they rate life insurance as the least most important tool in ensuring financial security.
Follow the siren call to beat inflationary woes
It’s time for investors to move heavily into alternatives.
That’s the message Evergreen Consultants are sending advisers. Angela Ashton, founder and director of the investment consulting firm, says it is time for investors to explore the alternatives sector more broadly, including gold, commodities, private credit, total-return multi-sector funds and real-asset funds with holdings such as infrastructure and real estate.
“What we are seeing is a mix of strong, sustained inflation coming through and interest rates rising, with last month’s Fed rate rise the first since 2018. We have reached an inflection point in the cash and bond markets. Rates are going up,” Ashton says.
The 60/40 investment strategy of allocating 60% of a portfolio to equities and the other 40% to fixed income is being put to the test. But, with rates on the rise and bond prices falling, this style of investing just won’t cut it anymore.
Advisers need to look beyond the standard asset allocation strategy of chasing sharemarket beta through passive equity funds and relying on bonds for diversification. With the war in Ukraine adding to inflationary pressure, equity investors should move to value or quality, to position their portfolios more defensively, says the consultant.
Evergreen Consultants is forecasting 7.75% average annual growth for Australian equities over the long term, with annualised volatility of 13.5%. This is based on a view that Australia’s long-term equity risk premium (ERP) of 4.5 % will remain unchanged.
“Investing in bonds will be very difficult this year as we expect a lot of volatility. It would not be surprising to see yields rise further from here and it is very hard to know where they will land. Markets are volatile and there is every chance they will overshoot,” Ashton says. She also goes on to say “credit has the advantage over bonds of having yields set at floating rates, which will rise as interest rates rise.” She cautions that there is a greater likelihood that “some credit funds will suffer defaults in the volatile trading conditions ahead and many funds are illiquid.”
This brings about the appeal of alternatives. Real assets can generate predictable income owing to consistent and stable earnings generated from the underlying asset, providing a client with visibility into revenues and dividends. Alternatives which cover commodities such as gold are also appealing during times of war. Gold is often seen as the safe haven asset where investors park cash until tensions ease. Gold, at its current level around A$2,500 an ounce, is close to a two-year high.
Alternative investment funds are key to a well-diversified portfolio. They can help to lower volatility, enhance returns and broaden the diversification of a portfolio. Because alternatives tend to behave differently than the typical equity and bond investments, adding them to a portfolio may help to lower volatility and enhance returns.
