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'Business as usual' despite correction fears

Fund managers are being told a shift to alternative assets could be a good move if they expect a downturn in 2018.

Monday, January 22nd 2018, 6:00AM

by Susan Edmunds

MJW has released its latest investment survey, in which actuary Ben Trollip said KiwiSaver growth funds were still heavily exposed to equities – at 75.6 per cent on average, compared to just 2.4 per cent for alternative assets.

“Just five of the 12 growth funds have allocations to alternatives, despite worries that traditional asset classes may be overvalued,” he said. “It is interesting that there’s not a greater allocation away from equities in these funds. They’re going about business as usual.”

Trollip said a move out of equities looked sensible because they were "looking stretched", and a shift to alternatives could deliver results this year.

Mercer was the exception among the funds, he said, with a relatively low allocation to shares compared to the others, and a sizable alternatives allocation. But Trollip said that move seemed to have been made too early - Mercer suffered compared to other managers over the past year.

“The problem with alternatives is with most you don’t expect them to keep up with shares over the long term,” Trollip said. They could also be a more expensive asset class to manage.

Brian Gaynor, of Milford Asset Management, said pundits had been predicting a crash for three years. Some managers had started to de-risk, he said, but it was not a substantial move yet.

Milford had begun to prioritise Australian shares over New Zealand.

Gaynor said it was worth investors thinking about changing their exposure and now could be a good time to move to a more conservative portfolio. “It’s always good when things have been very strong to reassess the mix a bit.”

The growth funds also have an average 8.3% in cash, which Trollip said could indicate that they had decided bonds offered little benefit beyond keeping the money in the bank.

That indicated wider industry concerns, Gaynor said. “The dilemma this year is where do people put their money?” 

He was still optimistic about the outlook for equities because of the strength in earnings, particularly in the US.

But Trollip said MJW usually took a sceptical view of tactical asset allocation. An investor could have been justified in shifting away from equities this time last year and would have missed out on 12 months of good returns.

Tags: asset allocation Brian Gaynor equities funds management investment KiwiSaver Mercer Milford Asset Management MJW

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