Money Management launches portfolio construction guide

portfolio construction asset allocation bonds Property retirement income global private assets ETFs ethical investment mortgage

20 July 2023
| By Laura Dew |
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Money Management is pleased to launch a new white paper focused on portfolio construction with exclusive commentary from seven asset managers.

The highly educational white paper focuses on seven different asset classes and how advisers can best utilise them in portfolios to meet the diversification needs and risk profiles of their clients.

With interest rates at 4.1 per cent and expected to rise higher this year and inflation surpassing the Reserve Bank of Australia’s target range, more advisers than ever are exploring alternative ways to protect their clients’ portfolios and provide diversification.

This guide will help advisers look beyond shares and fixed income towards a broader range of alternative asset classes and discuss with their teams and client how they may fit within a portfolio, whether as a core holding or by taking a satellite approach. 

With a new financial year just beginning, the managers featured also explore how they expect their sectors to perform over the next 12 months and areas where they are seeing tailwinds and opportunities for investment.

As well as the paper, several of these categories’ speakers have also recorded interviews which are available to listen to via the Relative Return podcast on the Money Management website.

The white paper is available to download via the Money Management website.

Retirement income

With APRA’s Retirement Income Covenant having been in force for a year this month, fund managers are considering the best retirement products they can design and offer consumers entering retirement. This includes Allianz Retire+ which is offering AGILE, a flexible retirement product offering guaranteed income for life.

Simon Aboud, chief product and marketing officer at Allianz Retire+, said: “In talking to advisers, what’s really clear and well documented, is advisers are very time poor. So, when you’re thinking about new products, you need to think about how they’re going to fit into the adviser practice, the processes and the systems that they use.

“We’ve designed our AGILE retirement income product in a way that it fits as an investment option within a superannuation fund and within an account-based pension. What that does is it allows consolidation of reporting and management of a client’s retirement income.”


A topic of conversation for retail and wholesale investors alike, the question of whether or not this is a good time to invest in a property is never far from people’s mind. At Centuria, their experts have been investing in property for 25 years and offer both unlisted and listed property funds depending on an adviser’s needs.

“One of the key benefits of unlisted commercial real estate in a diversified portfolio really comes down to having it as an alternative asset allocation and taking some of the volatility out. If you look at the returns and risk of direct property over a long period over the 10 years to December 2022, direct property provided an annualised return of about 9.3 per cent per annum with volatility of only 2.3 per cent per annum,” said Ross Lees, head of real estate fund management at Centuria.

“So when you look at that against available alternatives out there, be that cash or listed securities, it actually provides a very low volatility option within a portfolio and returns that are quite attractive relative to those alternatives as well.”

Mortgage trusts

Tying into the property theme, another area of alternative investment is mortgage trusts, where Trilogy Funds is a leader in Australia. These strategies are an investment vehicle that lend investor money to commercial borrowers to finance property development or construction. 

Philip Ryan, managing director at Trilogy Funds, explains: “With rates at 4.1 per cent, that effectively represents a risk-free rate of return and is similar to what people can get say from term deposits. But the problem is that that was a great return say a year ago, but these days doesn’t keep up with inflation.

“The key about mortgage trusts, is that it enables investors to get an income return as if they themselves are the lenders, and the borrowers are paying them interest. So as a result, they’re able to get what we would expect to be a greater return than simply the risk-free rate of return.”

Ethical investment
ESG and ethical investing has been around for many years but with ASIC making greenwashing an enforcement target this year, it is important for advisers to ensure they are using the right type of funds to meet their ESG needs.

Australian Ethical, which has $9.2 billion in assets under management, has been investing ethically since 1986 so is well placed to offer guidance in this space. 

John Woods, deputy chief investment officer at Australian Ethical, said: “What I find investing ethically helps us do is lift our gaze a little bit and look out to the long term. So most of the products we’re building are to support retirement incomes, to support long-term objectives, and that ethical guide aligns quite well. 

“We’re not just thinking about what’s happening today, we’re thinking about how our investments will help meet clients’ financial goals over the long term as well. And that ethical framework assists us and compels us to do that.”

Thematic ETFs
As the world makes technological advancements in areas such as cybersecurity and artificial intelligence and explores how we can combat climate change, these developments are being reflected in the financial products we choose.

Global X runs 33 ETFs including many thematic options such as Battery Tech and Lithium, Fintech and Blockchain and Hydrogen ETFs.

“Over the next five years, Australia’s $142 billion ETF industry is projected to be characterised by the continuing rise of thematic ETFs as the world continues to witness boundless product innovation, technological advancements and strides in climate preservation,” said Blair Hannon, head of investment at Global X.

“Global X has been at the forefront of thematic investing within the ETF sector, realizing the value of education around megatrends and their offer to investors in building wealth over time.”

Private equity
Having recently announced a joint venture with US player Washington H. Soul Pattinson, Pengana is establishing a diverse portfolio of global private credit investments.

Typically reserved for institutional investors, the firm is looking to broaden its scope and allow a wider variety of investors to access global private equity and private credit which it says provide the benefits of diversification, higher yield and lower volatility.

Russell Pillemer, co-founder and chief executive at Pengana, said: “Private equity generally delivers higher returns with lower levels of volatility. You don’t have those daily fluctuations in the value of your portfolio based upon market sentiment on any particular day that you have with listed equities.

“From a portfolio construction perspective, that makes a lot of sense for investors. It helps you increase the return of your portfolio and reduce the downside risk, it’s an obvious thing to have in portfolios.”

Fixed income

Fixed income products are incredibly popular right now after several years in the doldrums with the RBA decision at the front of everyone’s mind each month. To help advisers understand which fixed income product will best suit them, Capital Group has shared how its variety of investment products can benefit investors.

A spokesperson for Capital Group said: “Global investment grade corporate bonds are looking particularly  attractive against this backdrop, offering a compelling blend of defensiveness and income. It provides investors the opportunity to take advantage of an attractive entry point given elevated outright yields across the global investment grade universe.

“This entry point could also provide an all-important defensive ballast within portfolios, providing diversification against equities if markets experience volatility with weakening economic conditions, and potentially benefitting from an associated turn in the interest rate cycle.”

The white paper is available to download via the Money Management website.

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