Building a portfolio for a bumpy environment
A panel of portfolio managers have shared their asset allocation thoughts and how advisers can rebalance model portfolios for the changing environment.
Speaking at the Institute of Managed Account Professionals (IMAP) Independent Thought conference in Melbourne, the panel discussed how rising inflation was affecting portfolios.
Chamath De Silva, senior portfolio manager at BetaShares, said fixed income was looking an attractive asset class for him.
“The silver lining of this repricing is that baseline rate of real returns on traditional defensive assets and the safest defensive assets in cash and government bonds are better than they’ve been in several years.
“Fixed income as an asset class is now a meaningful source of income and portfolio diversification and defensive assets are arguably much more attractive relative to growth assets.”
Kieran Rooney, senior consultant at Evergreen, said people had previously focused on managing to meet certain benchmarks and these portfolios would be unlikely to work in this different environment.
“People got caught up chasing returns and managing for certain benchmarks and went up the risk spectrum and took illiquidity risk.
“But when you have to factor in decently-positive inflation then those models effectively fail to meet their objectives. When you’re building a portfolio today, the atmosphere is uncertain and it’s not going to be a straight line, it’s going to be very bumpy.”
Regarding how advisers could reflect this in portfolios, Rooney added: “You have to be laser-focused on your portfolio objectives and the CPI+ objective because until now, people dismissed that, they were focused on benchmark and these didn’t matter too much to clients.
“You have to really talk to clients and figure out their objectives and plan for an increasingly uncertain world because none of us would pretend to have all the answers.”
AUTHOR
Laura Dew
Recommended for you
While model figures provide valuable insights on how advisers can draw benefits from managed accounts, Zenith’s head of portfolio solutions has argued that professional judgement and quality research are key to successful implementation.
While the number of financial services staff using AI has almost doubled in the last year, two surveys have revealed that fast-paced AI adoption has led to governance gaps and growing concerns about job security.
Entireti has partnered with Striver to connect graduates and job seekers with its advice network to support the placement of new talent.
ASIC has cancelled the Australian financial services licence of Ivy League Capital Pty Ltd, a firm authorised to provide advice in relation to managed investment schemes.
CPI+ was a marketing ploy because it was an easy anchor for clients to understand and took the focus away from SAA benchmarks. It is now backfiring on them and they have all switched their rhetoric because they can't achieve their objectives, to say that CPI+ was a secondary objective, preservation of capital over the cycle was always the priority.