Research released by CREATE-Research and commissioned by Principal Global Investors has revealed that investors are starting to change their approach to diversification within their asset allocations, with most paying more attention to managing risk than managing return in the current environment.
Indeed, the report entitled 'Market Volatility: Friend or Foe?' shows investors' strong emphasis on de-risking within their portfolios – a fact which Grant Forster chief executive of Principal Global Investors believes is particularly relevant for self-managed superannuation fund (SMSF) trustees.
"With investments like cash, direct equities and direct property, SMSFs quite obviously have very different asset allocation staples to those of mainstream funds," he said.
"But I think the message for SMSFs here, apart from the mindset changing to risk, is that people are really nervous about missing the rally.
"They want to have their cake and eat it, but they acknowledge that you can't do that," Forster added.
"They're prepared to give up some of the upside today by having a more risk-aware portfolio, but by the same token, they really don't want to miss this upside," he said.
Forster also pointed out that Australian SMSFs had grown on the back of what he viewed as pretty ordinary equity market performance over the past 10 years.
"It's probably been the best 10 years over the last 30 to be in cash at these rates," he said. "But that's not going to keep going.
"Even if you're a 60-year old SMSF trustee, hopefully you've got another 20 years plus to need that income," Forster continued. "And you've got to think that the next 10 years are going to look better than the last 10.
"But the way SMSFs are currently structured, they're certainly not going to be getting much of an upside."
