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...

to Morningstar Premium Membership

Key investor risks
21/10/2014  Voted among the 50 most influential people in finance today, author and former banker Satyajit
Finding value in small companies
14/10/2014  A portfolio of "terrific value" can still be achieved despite the stretched valuations in the smaller end of the Australian equities market.
Choosing quality businesses
07/10/2014  Credit investors adopt a different approach to equity investors when assessing a quality business, according to PIMCO's Tracy Chin.
Don't panic about PIMCO
30/09/2014  Morningstar's Tim Murphy talks about the recent portfolio manager changes at the global bond manager and why investors should not panic.
Medibank IPO Preview
25/09/2014  Morningstar's Peter Warnes and David Ellis preview the upcoming initial public offering of health insurance giant Medibank Private.
A better deal for investors
24/09/2014  Morningstar’s Anthony Serhan outlines what the government’s Financial System Inquiry will mean for investors.
Europe growth: Gone for good?
18/09/2014  Facing entrenched structural issues, the eurozone’s days of robust growth are likely over, but there are some reasons for hope, says Morningstar's Bob Johnson.
Morningstar Individual Investor Conference
09/09/2014  Whether you are building your savings or transitioning to retirement Morningstar will help you secure long-term returns. This conference is not to be missed. Register now.
Will the ECB cuts boost growth in Europe?
09/09/2014  The European Central Bank (ECB) has taken measures to ward off deflation and boost growth in the eurozone. Will these interest rate cuts be effective?
Building a moat in foreign exchange
03/09/2014  OzForex’s low-cost, online business model could prove to be a meaningful market disruptor, and the shares look like a bargain today.
1 stock that's close to perfection
29/08/2014  Morningstar head of equities research Peter Warnes discusses results from the likes of Ramsay Health Care and Woolworths as the curtains close over the fiscal 2014 earnings season.
Why moats matter
26/08/2014  Morningstar Australasia's co-chief executive Heather Brilliant talks about finding great companies in a new book she co-authored titled Why Moats Matter.
BHP, Wesfarmers and investor returns
22/08/2014  Morningstar's Peter Warnes takes a look at the latest results from BHP Billiton, QBE Insurance, as well as a "shareholder's dream," Wesfarmers.
CBA stands out, Telstra gives back cash
15/08/2014  Morningstar's Peter Warnes takes a look at the latest earnings results from the likes of Commonwealth Bank, CSL, Telstra and ANZ, and gives investors an idea of what to expect from these companies going forward.
2 energy stocks with strong returns
08/08/2014  These two Australian energy companies should see strong returns over the next decade.
This wide-moat stock has been a star performer
05/08/2014  With its record of high profitability and very strong shareholder returns, this banking firm stands out.
How diversified is your portfolio?
31/07/2014  Morningstar’s Tim Murphy talks about an effective investment tool that helps investors achieve a diversified portfolio.
Seeking small-cap opportunities
30/07/2014  Morningstar's Tom Whitelaw shares some insights gained from recent talks with small-cap fund managers and provides some tips for those looking to increase their exposure to the smaller end of the market.
Key insights into quality stock-pickers
31/07/2014  Morningstar’s Julian Robertson talks about recent research into Australian large-cap managers and how some quality managers are approaching the market.
7 reasons why SMSFs outperform
22/07/2014  The key advantages to running a self-managed superannuation funds have also translated into strong performance.