Lack of downside protection a disservice
Page 1 of 1
Kate Kachor is a journalist with InvestorDaily, a Morningstar publication.
Australia's investment industry has done investors a disservice by not providing greater downside protection in uncertain market environments, an investment executive said.
MLC Investment Management senior investment strategist Brian Parker told InvestorDaily the industry as a whole needs to do a better job with protection strategies.
"As an industry, I think we've done people a disservice by not providing more downside protection," Parker said ahead of his presentation at last week's JANA and MLC Implemented Consulting Conference.
"I think we need to do a better job of that."
Asked why more downside protection is not currently available to investors, Parker said it was because the strategies "are not cheap".
He said as well as a greater need for downside protection, the industry has also learnt that it's important to "dare to be different".
"This idea of us all succeeding or failing together, running with the herd and keeping one eye on a three-year number in performance tables just encourages people to just all do the same thing," he said.
"If you look at the really successful investors, through history, they are generally people who dare to be different and who adopt different strategies and take a view and position portfolios based on the view and people who really managed risk really well."
Parker said a key lesson MLC Investment Management has learned is avoiding investment opportunities that sound too good to be true.
"One of the other things that we've increasingly come to the view of is the things we do as an investment house to manage risk are at least as important as the things we do to generate a return," he said.
"It means avoiding the blow-ups, it means avoiding the knockout punches, it's really avoiding stuff that sounds too good to be true.
"In this kind of environment where it is so uncertain, I just think that it becomes more important than usual."
He said in the last six months, MLC Investment Management has been looking at ways of introducing more reliability into the returns that the company delivers.
In particular, he said he has been seeking ways of introducing key strategies into the company's key funds that provide more downside protection in tough markets.
"It's all very well if the market is down 15 per cent and you say, 'Well I'm so good I'm down 13 per cent'. That's cold comfort for people. We want to introduce more downside protection than that," he said.