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.

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