Retirees may need more defensive allocations
Financial advisers may need to help retirees increase their defensive equity allocations to protect capital during downturns and corrections, according to Copia investment partner, Vertium Asset Management.
Its June quarterly research paper compared the past seven share market corrections during global slowdowns since 1990, to the most recent correction in December 2018.
Each correction that had a decline in the share market index averaged 19 per cent, with a low-to-high recovery time of 1.4 years.
However, the December 2018 equity market dip had been different, recording only half of the historical decline, 11 per cent, and one third of the recovery duration, five months.
This had raised the question if the market would continue its unusually quick recovery or follow the more common scenario of longer recovery with another potential downward correction.
Jason Teh, Vertium chief investment officer, said lowering the sensitivity to market movements could be a shield from potential market corrections.
“An efficient way to achieve this is to allocate more to funds with low correlation to the market, so if the market declines, that portfolio is not fully tethered to the decline in capital values,” Teh said.
He pointed to Vertium's low sensitivity, which had calculated its volatility risk measure as being half of the S&P/ASX 300 Index, with a Beta measure of 0.5.
That low sensitivity that was put into place cushioned their capital by about 50 per cent, with the expectation they would deliver six per cent income in the next 12 months.
Recommended for you
The latest budget papers have outlined a $10 million provision for ASIC greenwashing enforcement activity as well as funds for a sustainable labelling regime to be partially met by industry levies.
Betashares has expanded its fixed income solutions with the launch of a new ETF offering exposure to subordinated bonds issued by the big four Australian banks.
The latest monthly Bank of America global fund manager survey has found investors are starting to shift cash into bonds as cash allocations reach a three-year low.
AUSIEX analysis has discovered the net traded value of Australian dollar fixed income ETFs more than doubled from January to April, reflecting growing investor demand.