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
Sequoia Financial Group has declined by five financial advisers in the past week, four of whom have opened up a new AFSL, according to Wealth Data.
Insignia Financial chief executive Scott Hartley has detailed whether the firm will be selecting an exclusive bidder for the second phase of due diligence as it awaits revised bids from three private equity players.
Insignia Financial has reported a statutory net loss after tax of $17 million in its first half results, although the firm has noted cost optimisation means this is an improvement from a $50 million loss last year.
With alternative funds being described as “impossible” for fund managers to target towards advisers without the support of BDMs for education, Money Management explores the evolving nature of the distribution role.
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.