Australian investors should rethink risk, avoid ‘yesterday’s winners’
Maria Wilton
Franklin Templeton Investments has cautioned Australian investors that increasing allocations to passive strategies may limit their ability to grow their retirement income potential.
Speaking in Sydney ahead of Franklin Templeton’s Asia Pacific Investor Forum, which brings together portfolio managers from around the world to share perspectives on topics impacting a large range of markets, Franklin Templeton’s Australian Managing Director, Maria Wilton, emphasised that the growing trend towards allocating funds to passive strategies could prove counterproductive for Australians’ long-term investment goals.
“The market environment that we have seen since the GFC coupled with the divergence of monetary policies and economic results across world markets have created significant opportunities for active strategies,” said Ms Wilton.
“The single pursuit of “low cost” investment vehicles may be counterproductive over the long term. Avoiding asset classes or strategies that may be more expensive to manage and allocating to passive strategies is false economy.
“Passive strategies not only potentially increase the risk of being exposed to overvalued stocks in a market decline, but miss the opportunity to enhance return from active stock selection and tax management. By definition, these strategies buy more of the securities whose prices are rising while selling the securities whose prices are falling.
“Allocating capital to yesterday’s winners, without regard for fundamentals or valuation, is counterintuitive. Through the assessment of valuation opportunities, Australian investors stand to gain far more when they did not ‘follow the crowd’ into funds that merely track a benchmark index,” said Ms Wilton.
“By engaging an active manager with a distinctive, contrarian style, investors are well placed to take advantage of those market inefficiencies coming about as a result of a movement of capital towards index tracking strategies. Active management and diversification, with a focus on value and not just fees, provide the best opportunity to meet the investment objectives,” Ms Wilton added.
“The past year has been an eventful one for financial markets, dominated by heightened geopolitical risk, a global economic recovery that has failed to meet market expectations, and significant uncertainty regarding the effectiveness of monetary policy changes in major economies. In order to meet the challenges ahead, we need to keep an open mind and use all the resources at our disposal to stay on top of trends in an increasingly volatile and divergent global economy,” concluded Ms Wilton.
