Investors ignoring impact of capital volatility: Lonsec
Investors are being warned against specifically targeting asset classes that provide tangible income at an attractive rate without taking into account the need for versification, by Lonsec Research.
Lonsec investment consultant, Eleanor Menniti, said investors should be wary of being overexposed to certain sectors in their pursuit of returns.
"Being solely focused on income return could lead to portfolio overexposure in certain sectors — a prime example of this is current investor concentration in bank stocks," she said.
"This strategy increased sensitivity to a few factors, meaning that while the market might behave well most of the time, the portfolio would suffer if those specific factors were reversed.
"Investors are also ignoring the impact of capital volatility on total returns as they look at yield in isolation to other market factors."
Following its biennial Strategic Assets Allocation (SAA) and Model Portfolio reviews, Lonsec announced a series of changes to its portfolios to reflect broader market trends including:
- A reduction in overall total return targets due to lower long term expected return forecasts for most asset classes including global listed property, global bonds and cash
- A more balanced allocation between global and Australian equities, which reflects narrowing long term expected returns for the two asset classes
- Increased allocation to alternative assets to help investors achieve portfolio diversification and provide protection in market downturns
- Inclusion of conservative alternatives — in conjunction with growth alternatives — to provide more defensive returns, as the product offerings within this space increases.
Menniti said the Lonsec had positioned its portfolio with exposure across a range of approaches to ensure performance was not tied to one specific market environment in the wake of the reviews.
AUTHOR
Nicholas O'Donoghue
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