Preserve capital and grind out alpha

Australians need to preserve their capital, grind out alpha, favour bottom-up strategies over beta and scour the world for diversity, as potential future corrections were on the horizon, according to fixed income fund manager, PIMCO.

Whether Australians were transitioning from family owned enterprises to a diversified portfolio, or were in decumulation phase, investors needed to generate sustainable income that supported their spending habits, amid low interest rates and high volatility, the firm said.

PIMCO's managing director and head of Asia Pacific, Eric Mogelof, said capital preservation should be investors' number one priority.

"Riding a wave of unstable betas — all correlated to central bank polies — is no longer a strategy for success," he said.

Low passive returns are insufficient for both retirees and high net worth investors. So, investors could boost their returns with active management, he said.

"Moreover our secular outlook cites several additional left tail events that could increase the potential for capital losses and write downs — populist shocks like the recent ‘Brexit' vote and political gridlocks are two examples."

Higher market volatility also created opportunity and careful portfolio construction helped investors buy into undervalued assets, he said.