Looking beyond orthodoxy
Our clients at Retirewell Financial Planning are mainly retirees — about 70 per cent.
We run two sets of model portfolios of managed funds, implemented through the Macquarie Wrap. Most of our clients’ money is in superannuation or allocated pensions, so tax is not such an important issue.
We have three models comprising 10 funds plus cash, where we are focusing on income (conservative, balanced and balanced growth), and three model portfolios comprising 10 funds plus cash, where the primary requirement is for capital growth, and where the level of income is preferably low (balanced growth, growth and high growth).
At this stage, our models are based on the traditional approach to portfolio asset allocation — that is, where the proportions allocated within the portfolio to growth assets/defensive assets is 30/70 (conservative), 50/50 (balanced), 70/30 (balanced growth), 80/20 (growth) and 90/10 (high growth). We use internally geared equities funds in the high growth portfolio to achieve a 100 per cent allocation to growth assets.
We are very conscious of the fact that the orthodox approach to asset allocation has a major flaw in that portfolio returns are heavily dependent on the returns from equities markets and thus carry too much equity risk. For some time we have been investigating how we can incorporate high return assets that have low correlation with equities. These alternative assets/strategies include commodities (including gold and resources), infrastructure funds, private equity, hedge funds and property (including direct property, international property and agribusiness ventures such as forestry) and hedge funds (both single manager and fund of funds).
We have to undertake our own research on alternative portfolio construction models. We are now seeing emerge a number of managed funds in the areas of commodities, private equity, infrastructure and international property securities. However, because most of these funds are new, we prefer to wait until some track record is established.
We are already incorporating into our models a resources fund and international property securities funds.
In the equities area, we avoid the long only, index-hugging managers. In the fixed interest space, when you take into account the fees charged by underlying managers, the platform’s fees and our fees, we have found that, with standard bond funds returning around 6 per cent, the client would have been better off in cash.
In order to obtain a decent after fees return for the client, we have had to avoid funds such as those based on interest rate and duration risk and take on funds where the primary risk is credit risk.
We are also avoiding fund on fund hedge funds and scrutinise closely those funds with performance fees. We’ve decided not to use a number of funds where it looks like they have been set up as the manager’s private retirement fund.
Tony Gillett
Director and principal
Retirewell Financial Planning
Recommended for you
The emergence of DeepSeek, a Chinese artificial intelligence (AI) start-up that claims to have built an advanced large language model in just two months for under US$6 million, sent shockwaves through the AI world and cratered US tech stocks.
Donald Trump’s presidency has already begun reshaping the corporate and political landscape in the US, with executive orders rolling back diversity, equity, and inclusion (DEI) initiatives and clean energy efforts.
In this episode of Relative Return Unplugged, hosts Maja Garaca Djurdjevic and Keith Ford are joined by AMP chief economist Shane Oliver to take a look at what can be learned from 2024 as attention turns to what markets will do in the new year.
Join us for a special episode of Relative Return Unplugged as hosts Maja Garaca Djurdjevic and Keith Ford are joined by shadow financial services minister Luke Howarth to discuss the Coalition’s goals for financial advice.
