Getting back into the market

Christine St Anne  |  27/11/2012Text size  Decrease  Increase  |  
Christine St Anne: 2012 was a rather volatile year for many investors and cash was seen as the safe asset class to be in. Today I am joined by Westpac's David Simon, to talk about whether it's time to get back into the market. David welcome.

David Simon: Thanks, Christine.

St Anne: David, are you finding that your clients are starting to move a portion of their cash into other asset classes?

Simon: Yeah, certainly. Our clients are starting to look at alternatives rather than cash. Even though, a recent survey confirmed that people between the ages of 50 and 64, 47 per cent of them were actually concerned about the market and hence hold an allocation in cash because of the fact that they felt there was uncertainty in the markets. Once you account the current interest rates being continuing to fall as well as inflation and tax, they're certainly behind the (eight-ball). So, we are finding clients starting to move away from that asset class albeit slowly into alternatives.

St Anne: Do investors have more of a preference to equities and perhaps domestic equities?

Simon: Look, it's interesting. Clients are very aware these days, so it's all about being I suppose uncorrelated. So, clients – and certainly led through by advisors and media agencies and what have you. Consumers have become much more aware and investors are becoming a lot more smart and indeed cautious. So, the theory around correlation is quite prevalent when we are having discussions.
So that means that if you're going to be investing in equities that you're investing in alternative asset class that may perform when equities are not, such as fixed income. So, we are finding that clients are certainly moving away from cash, but into a much more traditional stock portfolio encompassing asset classes that are not particularly correlated, hence really reducing volatility, significantly reducing risk and ensuring that returns are a little bit more smooth.

St Anne: David, what are the asset classes are investors looking to boost their investment in?

Simon: So, as oppose to the big ticket ones and the big staples are suddenly equities and property, but we're finding that clients are much more engaged around fixed traditional core focused and defensive fixed interest assets, as well as alternatives such as commodities, gold and even sometimes foreign currency.
So, really investing in a basket of assets that again are not particularly correlated, so when one asset class performs, and the other asset class may underperform, equally ensuring that you haven't got all your eggs in one basket and trying to sort of dilute that unpalatable volatility.

St Anne: David, with interest rates easing, do you think that cash will be the darling asset class for 2013?

Simon: Look, Data Stream did a recent survey, and of the last 20 years cash-only was the best performing asset class in one of them and that was quite recent in 2008. Look I mean, it's not just that historical performance, but certainly for people that were investors that need excess growth, they need returns beyond inflation and tax, cash isn't going to get them there.

So, certainly investors are looking at alternatives that are going to be able to generate returns that are necessary and adequate for them to achieve their objectives, indeed if its retirees or just what the cumulative is seeking financial independence. People are looking for alternatives. Certainly, if they've got the appropriate timeframe, so at least five years, and if they've got the appropriate risk profile and ideology around accepting and handling volatility. Well then absolutely, alternative asset classes such as equities are certainly a lot more attractive than those of cash, which is more of the sit on the fence short-term investment.

St Anne: David, thanks so much for your insights, today.

Simon: Thank you.

Video Archive...

What returns should you expect from markets?
01/12/2016  As market risks rise, investors must adjust their profit expectations--gone are the days of 8 per cent returns. But there are still growth opportunities out there if you know where to look.
Why healthcare stocks got a bump from Trump
28/11/2016  Australian healthcare and pharmaceutical companies continue to enjoy a purple patch, and for various reasons including the recent US election result, explains Morningstar's healthcare equities analyst Chris Kallos.
Equity and hybrid investors react as bond prices tumble
24/11/2016  The negative correlation between bonds and equities is reasserting itself following the US election of Donald Trump, according to John Likos, Morningstar's senior credit analyst.
2 global themes that are finding favour among ETF investors
15/11/2016  Australian retail investors are increasingly turning to ETFs for specific tactical exposures to global themes, particularly in the context of large-scale market events such as US election 2016.
Maintain discipline and stick to fundamentals when selecting stocks
14/11/2016  Steer clear of fads, maintain a disciplined approach and focus on company fundamentals in building and maintaining your investment portfolio, says Anton Tagliaferro, investment director, Investors Mutual
How Trump could impact economic growth
10/11/2016  Slowdowns in trade and immigration could hold back the US, and infrastructure spending could boost GDP, but it's too early to make any major changes to our economic forecast, says Morningstar's Bob Johnson.
President Trump: What should you do?
10/11/2016  Donald Trump has beaten Hillary Clinton to become the 45th US president. What should investors do?
Software companies worth watching amid tech deployment phase
08/11/2016  Kate Howitt, portfolio manager at Fidelity International discusses some of the core phases in technological disruption and identifies software companies among those currently presenting opportunities.
Kerr Neilson hot, cold and tepid on Europe, US and China
07/11/2016  Platinum co-founder and CEO Kerr Neilson explains his views on the major global markets and outlines where he sees opportunities--and where he doesn't.
Is Inghams a moat-worthy investment?
02/11/2016  Morningstar's Ravi Reddy discusses the upcoming float of poultry product producer Inghams, and whether it's in investors' interests to subscribe for shares in the IPO.
3 best ideas in healthcare
26/10/2016  Morningstar's Chris Kallos looks at some of the most compelling ideas in Australian healthcare, while also reaffirming the importance of the uncertainty rating and how it pertains to the sector.
Exercise caution and let some cash build
24/10/2016  Morningstar's Peter Warnes provides a near-term outlook for equities markets, while also sharing his thoughts on the upcoming Ingham's IPO.
Bogle forecasts low stock and bond market returns
21/10/2016  Warning of "much lower market returns" ahead, Vanguard founder Jack Bogle urges investors to seek low-cost investment products. From Morningstar US.
Finding the right flavour ETF amid expanding ETP menu
13/10/2016  From a relatively vanilla selection of exchange-traded funds (ETFs) on offer in the early 2000s, Australian investors can now choose from a wide range of exchange-traded products to suit various tastes.
Bright outlook for Aussie banks despite parliamentary committee and looming Basel IV regulations
12/10/2016  Australia’s ‘big four’ banks’ share prices have held up after their CEOs recently fronted a parliamentary committee, and have already absorbed the potential impact of more stringent capital requirements
Dividend, cashflow challenges hit investors but yield opportunities remain
06/10/2016  Technology, healthcare and telecoms hold opportunities for global equity investors even as utilities and energy stocks disappoint, says Jane Shoemake, director for global equity, Henderson
No place for set-and-forget asset allocation
04/10/2016  A 2016 company reporting season overview and explanation of why dynamic asset allocation is so important, from Dr Shane Oliver, chief economist and director of investment strategy, AMP Capital.
The search for bond yields
27/09/2016  Morningstar's Hybrid Handbook: Navigating the Australian Hybrid Market pulls back the curtain on corporate and bank hybrids, as John Likos, Morningstar's senior credit analyst, explains.
Here's which stocks will be the real winners in FY17
15/09/2016  Morningstar's Peter Warnes reflects upon the most recent corporate earnings season and shares his thoughts on which stocks could deliver strong performances in the near term.
Resolution Capital Global Property Securities
13/09/2016  Morningstar's Ross Macmillan examines a number of outstanding qualities that sets Resolution Capital apart from other managers.