Asset allocation

Institutional investors get it. So do some financial advisers. But for most SMSFs, sovereign and corporate debt is the forgotten asset class – despite the defensive benefits it can deliver.

Primary and secondary homes make up about a third of the total global wealth of the ultra-rich, new research shows. Commercial property and equities are also big components, with a small but increasingly valuable share going to “investments of passion”.

Higher bond yields are making fixed income fundamentally more attractive than it was during years of ultra-low interest rates. AMP’s Diana Mousina and Chris Baker recently discussed the opportunity set as investors look to add income and defensiveness in a new paradigm.

Repeating his warning that markets are undergoing a “sea change” that will see a new set of winners and losers emerge in short order, the famed distressed-debt investor said it’s time to consider a profound shift from asset ownership to lending and credit.

With Australia facing difficult conditions as the impacts of rising interest rates continue flowing through the economy, credit remains one of the most reliable and attractive ways to add defensiveness to a portfolio, strategists from SQM Research and ICG told a recent Inside Network symposium.

Recent economic turmoil has had the positive effect of giving fixed-income back its traditional defensive kick, says Western Asset’s Anthony Kirkham. Investors should be ready to reallocate as needed to take advantage of the renewed diversification benefits.

Diversification is key for building long-term, sustainable wealth and managing risk. While no single approach is best, using several diversification strategies offers sound protection against portfolio volatility, writes Selfwealth brand and content lead Robert Marfell.

With tighter monetary policy likely to keep returns on equities capped for the remainder of the year, advisers identify key themes that will provide growth and defence for a resilient portfolio.

With new data showing offshore share investments comprise just 2 percent of total self-managed superannuation fund assets in Australia, advisers are warning SMSFs against overreliance on domestic shares and cash and urging diversification.

Heightened volatility and market noise can be good things for the informed investors. That’s where capital markets assumptions come in, providing a starting point and a roadmap for portfolio construction primed to benefit from market dislocations, industry leaders said.

The recent re-embrace of active equity management by Australia’s sovereign wealth fund may herald a shift in the active-versus-passive debate, industry leaders said, as market volatility prompts greater dispersion and allows active management – at the right price – to prove its worth.

The average annual interest rate on banks’ one- and three- year term deposits has risen to 3.2 per cent from 0.25 per cent over the past year. With markets expecting the official cash rate to peak soon, savers looking to lock in attractive rates will find the best deals with smaller, newer banks, analysts say.