What the FASEA Code of Ethics means for advisers

Perpetual kicks goals with Mainstream SMA

Q: Considering retirement incomes, in a low interest rate environment, are retail investors going to be forced into riskier portfolios, as they hunt for yield and returns?

Rudi Minbatiwala: From my perspective, that’s why this topic of retirement income portfolios is so complicated. Yes, equities are being called upon to do so much more heavy lifting in client portfolios, which seems at odds with one of the key retirement objectives, which is lower volatility. 

The equities component of an investor’s portfolio dominates the risk contribution of the portfolio. That’s why when we talk about ‘balance’, we’ve got to find a way to de-risk that most risky component of our client portfolios. 

However, asset allocation is driving us towards equities because of the yield pressure in some of the other asset classes. So, by doing more within the equities component of a client’s portfolio, can drive value for those clients in that stage of their financial planning.  

Kris Walesby: Equities are more risky than most other asset classes. When I came to Australia five years ago, it was obvious to me that many professional Australian investors and retail investors think they are not taking risk with equities. However, when compared with most other regions, they are, in fact, taking a lot of risk. 

For example, a conservative portfolio in Germany and Switzerland is made up entirely of bonds and cash. There are no equities included whatsoever. But because Australia is such an equities focused nation, driven by franking credits, equities is hugely popular in this country. 

However, equities is an inherent risk, because no-one in Australia has been particularly stung by equities for the last 20 years. It’s almost like a clear and present danger, and investors need to be cautious of that.  

Michael Watson is Executive General Manager – Head of Major Clients at La Trobe Financial; Kris Walesby is the CEO of ETF Securities Australia; Rudi Minbatiwala CFA is Head of Equity Income at First Sentier Investors; and Tom Schubert is Managing Partner of Drummond Capital Partners.

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