A desire by Australian investors to mitigate risk has seen a pile-up of funds sitting in cash.
Rates on cash are higher in Australia than in many OECD countries and it has looked like a safe haven from equity volatility. But is having all your eggs in one basket really a risk-off strategy?
Most definitely not, says leading global investment manager, Threadneedle Investments (Threadneedle).
Head of Australia for Threadneedle, David Chinnery, said:
“In fact, global equities have rarely looked more attractive as part of a diversified portfolio. Yields are competitive relative to cash, and valuation models suggest that stocks are cheap. Now is the time to consider re-allocating out of cash and into global equities. Gradually building up exposure to global equities now could provide significant opportunities for investors in the future. This is particularly true in an environment where most analysts predict that interest rates are still coming down, which can only mean diminishing returns from cash going forward.”
Mr Chinnery went on to say the key to good portfolio management lies not in chasing sentiment and specific asset classes, but rather having a long-term investment view by focusing on allocating regularly and sensibly between competing asset classes.
“We all know that the news out of Europe has been dire, and that the US and China both have their problems as well. But every cloud has a silver lining, and economic conditions have produced a number of portfolio drivers that point to global equities as a great upside play”, he said.
Threadneedle’s Head of Global Equities, William Davies, said:
“Debt is cheap, and for well-managed, strong companies this means a lower cost of capital and a lower hurdle rate for new investments.”
Mr Davies backed this up with examples of thematic areas driving stock selection from Threadneedle’s portfolio of investments:
- Emerging consumers: Long-term growth, new areas of expenditure, opportunities for global brands. For example, Swatch.Shift in supply of and demand for gas: Asian demand for energy increasing, new areas of gas supply being developed eg Brazil, LNG technology enables development of global market, shale gas transforms US domestic gas industry. Beneficiaries include BG Group (British Gas), LyondellBasell and Dresser Rand.
- Innovation driving growth: Secular growth in low growth world, market share winners driven by new product innovation (e.g. smartphone adoption boosts e-commerce and online advertising). Beneficiaries include Apple and Ebay.
“The important point is that investors needn’t limit themselves to the Australian market in an effort to minimise risk. Global equities selected by an experienced investment manager should be considered as a key element of any diversified portfolio. It’s worth remembering we invest in companies not economies or countries. Despite the challenging economic backdrop, there are strong companies with competitive franchises to be found and diligent stock-pickers will reap the rewards,” Mr Davies said.
19 July 2012
