2 asset classes presenting value

Nicholas Grove  |  16/06/2016Text size  Decrease  Increase  |  

Nicholas Grove: I'm Nick Grove at the Morningstar Investment Conference in Sydney and I'm joined by Simon Stevenson.

Simon, where are you seeing some pockets of value in the markets at the moment?

Simon Stevenson: Because that's a difficult thing at the moment, there isn't much value out there. When we look at our prospective returns for most asset classes, generally they are lower than the long-term average is. So, it means most asset classes are on the expensive side. So that means on default, we have cash levels a little bit higher.

On a relative sense though, where we see pockets of value is Australian equities, a reasonable value relative to history and also, global high yield actually gives good value, especially given the lower volatility it gives you relative to equities.

Grove: And Simon, what do you think is a sensible allocation to Aussie equities at the moment?

Stevenson: As I said, we prefer Aussie equities to global equities. So, we are actually overweight Aussie equities in our relative funds. In our, sort of, more absolute return type funds we have around 15 per cent, 16 per cent to Australian equities and a little bit less for global equities in the portfolio. So, relatively, we've got equity exposure but in an absolute sense, it is on the high side.

Grove: And currency, are you hedged or unhedged?

Stevenson: We're generally unhedged in our portfolios for several reasons. One, the Australian dollar on purchasing power parity is still expensive. So that means foreign currency is cheap. The other advantage of the Australian dollar is that it tends to fall in times of risk-off. So, it's actually a diversifier owning foreign currencies in your portfolio. So, there is the diversifier out there, foreign currency, that's actually cheap, so it's very worthwhile having it in your portfolio.

Grove: Simon, thanks for your time today.

Stevenson: My pleasure.

Grove: I'm Nick Grove with the Morningstar Investment Conference in 2016.

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