Central banks' 'heist' on savers with low rates: Pengana

The decision by central banks to cut interest rates to record lows will be perceived as tantamount to the “greatest heist” on savers by forcing them to take increased risk for a return on their investment.

In a webcast, Pengana chief investment officer Rhett Kessler said the decision to cut rates to record low had left investors in a difficult position as they felt there was no alternative to going into equities.

Rates were at 0.25% in Australia and the United States and 0.1% in the United Kingdom while countries such as Switzerland and Japan had moved to negative rates. Reserve Bank of Australia governor Philip Lowe stated this rate would be in place for another three years and there was industry speculation they could be cut further.

This meant it was harder and harder for investors to attain a return from their savings in cash or fixed income.

Kessler said: “In 10 years’ time, we will see that central banks exhibited the greatest heist of all time on savers by forcing them up the yield curve.

“They can’t be in cash or fixed income so all roads point to equities and more and more money has gone into equities, this is a real concern. Moving to equities is fraught with risk and people are cornered between FOMO [fear of missing out] and TINA [there is no alternatives] to equities.”

Earlier this month, Vanguard described how investors were putting themselves at ‘immense risk’ with increased equity allocations as they would need 100% allocated to the asset class in order to generate the same income returns as they did in 2013.

According to FE Analytics, within the Australian Core Strategies universe, the Pengana Australian Equities fund lost 7.5% over one year to 30 September, 2020, in line with losses by the Australian equity sector. 

Performance of Pengana Australian Equities fund versus Australian equity sector over one year to 30 September