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...

Building wealth with building materials
09/02/2016  Morningstar's Tim Mann examines those stocks poised to benefit from strong housing activity and a strengthening US economy.
Safe withdrawal rates for retirees
02/02/2016  Morningstar's Anthony Serhan explains why retirees in Australia should use lower initial safe withdrawal rates than those suggested in prior research.
Key factors for picking dividend-payers
01/02/2016  The income stream from dividend-payers can play a special role in funding portfolio withdrawals, says Morningstar's Josh Peters.
What is alpha and why should you care?
27/01/2016  Alpha is often described as the extra profit delivered by fund managers on top of market returns. Understanding alpha can help you make better investment decisions.
Australia offers investment growth
20/01/2016  Sentiment towards Australian equities has been unduly negative, says Fidelity's John Lo, and alongside Korea, Australia is providing an unexpected boost to portfolio returns.
Credit securities: The good, the bad and the ugly
14/01/2016  The ability to meet payments and obligations to investors is what separates a good credit security from a bad one, and moat-rated issuers have a stronger ability in this regard.
Why the world is worried over China
13/01/2016  Knock-on currency effects and trade concerns are weighing on, in some cases, fully valued global markets. The result: a rocky ride for investors.
What's fueling the volatility in China?
08/01/2016  Fundamental, technical, and behavioural factors are all at play in sending Chinese and global shares lower, says Morningstar's Dan Rohr.
China woes to cause market volatility
08/01/2016  The US economy is mostly insulated from a slowing China, but that doesn't mean a smooth ride ahead for global stock markets, says Morningstar's Bob Johnson.
ETF investing rules of thumb
05/01/2016  There are many potential benefits to ETF investing but there are a number of rules investors should heed in order to avoid problems.
Top tips for small-cap investing
14/12/2015  The founder of the Eley Griffiths Group gives investors an idea of what to look for should they wish to dip their toes into small-cap waters.
Does the Japan stock market have further to rally?
10/12/2015  Japan was tipped as the hot market for 2015 and it has lived up to predictions. So how much further does the Nikkei have to rally?
Key stock evaluation metrics
08/12/2015  Australian Foundation Investment Company managing director Ross Barker discusses how he and his team go about assessing stocks with long-term prospects.
The most important statistic for dividend investors
03/12/2015  The payout ratio--the dividend rate divided by earnings--can give you an idea of how well covered the dividend is, and how likely it is to grow, says Morningstar's Josh Peters.
Tailwinds blow for Europe and Japan
01/12/2015  Given their solid forward earnings growth prospects and policy tailwinds, European and Japanese equities look favourable, BlackRock's Stephen Miller says.
The importance of valuation
25/11/2015  Valuation is critical as it drives both risk and return, and buying the wrong asset at the wrong time can have devastating consequences.
2016 another difficult year for emerging markets
24/11/2015  Emerging markets veteran Hugh Young of Aberdeen admits that 2015 has been hard for investors but says stocks are cheap and there are gains to made over the long term.
Emerging markets: down but not out
18/11/2015  Emerging economies have struggled in recent years, but their increased productivity, stronger population growth, and rising middle classes represent an important growth opportunity for the future.
Characteristics of quality investments
17/11/2015  While markets may be constantly changing the traits of good-quality companies remain the same, Celeste Funds Management's Frank Villante says.
Moats, stewardship and managing volatility
12/11/2015  Morningstar's Mathew Hodge looks at how moat ratings complement an income strategy and can steer investors away from a range of problems.