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Tactical asset allocation needs updating: Tyndall

Samantha Hodge  |  05 Feb 2013Text size  Decrease  Increase  |  

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Samantha Hodge is a journalist with InvestorDaily, a Sterling publication.


Market shifts in the aftermath of the global financial crisis (GFC) have made reassessing asset allocation to tactically manage risk increasingly important for Australian investors, according to Tyndall Asset Management (Tyndall AM).

Tyndall AM's head of multi-manager, Ken Ostergaard, said the firm has become much more active in tactical asset allocation in the way it manages portfolios, particularly in the multi-manager portfolios in Australian and global equities.

"If you look at the way asset allocation was done 'old school,' it was for investors to look in the rear-view mirror, back in history over several economic cycles and decades. But in the last five years that has more or less been turned upside down completely," Ostergaard told InvestorDaily.

"You have more or less had zero equity return, on average, from when the GFC started to today. Volatility is twice the level as we have seen in history. That clearly means the way you traditionally did asset allocation has been completely thrown out of the window in the last few years."

Traditionally, investors have chased any investments that look remotely "safe" and as a result there has been a trend to invest in stocks for the wrong reasons.

High-dividend-yielding stocks have become relatively expensive, markets have become increasingly volatile and money is being invested for reasons of safety and uncertainty rather than by taking a longer-term, forward-looking view of where the world might be going.

"We take one long-term view with strategic allocation and we favour things like emerging markets over developed markets in equities because they are much more attractive," Ostergaard said.

"But we also have short-term mechanisms in place to quickly move in and out of almost anything using financial instruments such as derivatives and ETFs (exchange-traded funds) to manage short-term risk and volatility.

"It is definitely time to review asset allocation and be wary of volatility. Returns in equities are here to stay for a while. We have had a number of recessions in a number of economies and that will persist into the future."