Dynamic approach needed in 'Goldilocks' economy
In a stagnating Australian economy, institutional investors are taking a more dynamic approach to their asset allocation, according to research by AXA Investment Managers.
Based on a survey of 97 institutional investors and consultants, AXA stated that Australia is currently in a post 'Goldilocks' economic environment in which inflation has slowed and the economy is strong enough to fend off a recession.
AXA IM Australia and New Zealand director Craig Hurt said investors are moving away from purely product-based approaches and going after multi-asset class solutions with tailored risk-return profiles.
Around 20 per cent of respondents said they were using a purely dynamic asset allocation approach, while over half (53 per cent) said they were using both a strategic and dynamic strategy.
In addition, two-thirds of respondents said they were a taking theme-based approach to their asset allocation rather than focusing only on benchmarks, the survey found.
"The world we live in is far more volatile, so investing according to the 'known knowns' becomes far more important - as does understanding what risks we should be taking," Hurt said.
"By applying a thematic approach at both an asset allocation and equity level, investors have a relatively sensible means of investing according to the 'knowns' and preventing investment in the areas where there may potentially be problems," he said.
According to AXA, over half of respondents did not have a proper strategy to deal with the fall in liquidity and the rising transactional costs of fixed income investments.
"When you add to that the problems with being overexposed to riskier credits, it's surprising that more than half the local market doesn't explicitly deal with the issue," Hurt said.
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