Smarter strategies required for older investors.

It’s a well known fact we are living longer, in fact a new research paper from AXA Investment Managers (AXA IM) indicates that every day we live we currently gain five more hours of life expectancy.  The paper, ‘Thoughts about the rise in longevity’, considers the complex relationship between populations living longer and the pressure this puts on businesses, individuals and markets on a global scale.

According to the paper, the economic theory of the life-cycle predicts that retirees dissave (where spending is greater than income) to maintain their standard of living despite lower income and switch to less risky assets as their risk appetite reduces, having far-reaching consequences on their retirement savings.

AXA IM Director for Australia and New Zealand Craig Hurt said Australia’s ageing population required smarter strategies that would make their money work harder for longer.

“Longevity is increasing at a pace difficult to apprehend, in many countries, half the babies born today could live 100+ years. As we are living longer superannuation shouldn’t just been seen as a drawdown option after retirement age. Investors need to consider continued growth of their capital for a longer period of time with less volatility. Australian funds are showing most interest in employing smart-beta products for post-retirement portfolios, where there is less sensitivity to tracking error in place of a stable, less volatile return,” he said.

AXA IM launches Global SmartBeta Equity pooled fund for investors in the post retirement phase

AXA IM has expanded its SmartBeta range with the launch of the AXA World Fund Global SmartBeta Equity. The Fund seeks to provide long-term investors with an efficient, well-diversified and low cost way to achieve improved equity market returns by capitalising on market inefficiencies and avoiding the inherent drawbacks of indexing.

In May 2012, AXA IM launched its SmartBeta solution with a series of innovative corporate bond strategies.  Since then the SmartBeta range has been developed to offer smart solutions for harvesting beta from equity markets and fixed income.  On a global scale AXA IM now manages over A$4 billion¹ across its SmartBeta strategies (fixed Income over A$1.6bn and equity approximately $A2.6bn).

The latest addition to this range, the AXA WF Global SmartBeta Equity, is a long-term equity investment strategy that aims to efficiently deliver an improved total risk/return profile for investors. The strategy is designed to achieve 100-200 basis points annualised excess return, with approximately 80% of the market volatility, over the full market cycle. It is intended to avoid full participation in speculative bubbles, and to exhibit less extreme drawdowns during market shocks.

Tim Gardener, Head of Institutional Client Strategy at AXA IM, comments: “Institutional investors want smart, dynamic solutions that generate long-term, cost effective returns. We believe that traditional market cap-weighted indices expose investors to sources of structural systematic risk that, over an investment cycle, are under compensated. In particular, our research shows that volatile stocks and those with poor ‘earnings sustainability’ have been persistent sources of additional risk, but not additional return. Traditional market cap-weighted indices also often concentrate exposure in a relatively small number of large caps. The AXA WF Global SmartBeta Equity has been designed with the aim of overcoming these challenges and, in turn, achieving improved equity market returns for investors, over the full market cycle.”

The AXA WF Global SmartBeta Equity revolves around three building blocks:

1. Systematic filter: to reduce exposure to uncompensated risk and improve sustainable earnings growth
2. Intelligent diversification: to protect against concentration risk, while managing liquidity
3. Smart implementation: to minimise cost.

The Fund leverages AXA Rosenberg’s data platform and proprietary insight into the fundamental drivers of risk and return. For example, their proprietary, forward-looking measure of ‘sustainable earnings growth’ is the cornerstone of the filtering process. AXA Rosenberg has more than 8 years’ experience managing portfolios that target reduced volatility and reject market capitalisation. The Fund also benefits from continuous investment oversight and on-going SmartBeta research and development.

Craig Hurt concludes: “We believe that blindly tracking an index however it is constructed can never be optimal as they studiously ignore real time information and the evolving environment. Our SmartBeta strategies give investors another option – offering an outcome focused, practical investment strategy that seeks a more efficient equity market beta. With a less volatile return profile, these strategies are a good fit for the post retirement phase where members have higher account balances and are more sensitive to periods of drawdown.

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