Findex reveals Investment Strategy: Six Pillars for investing in the ‘new normal’ landscape

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  Kieran Canavan

  International equities provide a wide range of growth opportunities and offer strong diversification benefits that impact an investor’s wealth accumulation strategy.

• The resilient yield component of Property and Infrastructure investments makes them a valuable asset in this turbulent ‘new normal’ environment.
• Effective risk management is paramount. We see the importance of appointing managers who have a quality bias; our research shows that the benefits of tilting to this investment style can be significant for investors seeking to ensure a target level of retirement income.

Findex has publicly outlined its investment strategy across its stable of brands, designed to maximise client portfolio performance in the foreseeable investment landscape which they are describing as the ‘new normal’.

The characteristics of the ‘new normal’, says Kieran Canavan, Findex Chief Investment Officer and Vice Chairman of the Investment Committee which provides guidance for all Findex advisers, is “low interest rates, low growth and high volatility”.

Mr Canavan says most investors are reminded almost daily that low yield and high volatility are very challenging conditions in which to seek to grow wealth, let alone simply maintain it.

“In these conditions it’s imperative to pursue a balanced approach,” he said.

“The ongoing low interest rate environment is causing a realisation that returns enjoyed over the last five years, particularly equity returns up to the end of 2014, are unlikely to be sustained.

“Strategically, we don’t believe client value-add originates largely from superior stock collection.

“Rather, we believe that it is critical to maintain a balanced approach to adding value that includes a number of key drivers.

“This includes determining the appropriate mix of growth and defensive assets and altering the mix or composition of these assets both on a strategic (5 year) forward looking and on a tactical (3 month) forward looking basis.

“It also includes selecting good managers who have superior stock selection ability, managing risks through effective portfolio construction, and delivering cost effective solutions to the end investor.

“These performance drivers are reflected in our six investment pillars: Asset Allocation; Australian Equities; International Equities; Fixed Income, Alternative Investments and Portfolio Construction.”

Stefano Cavaglia, Findex Head of Investment Research, notes that there are a number of fundamental themes that underlie the pillars (details are annexed):

“Firstly, in the current environment, Australian investors must note that their domestic equity portfolios are highly concentrated; international equities provide a wide range of growth opportunities and offer strong diversification benefits that impact an investor’s wealth accumulation strategy.

“Secondly, given the lower return world, we must seek new drivers of performance that can be captured via alternative investments. The resilient yield component of Property and Infrastructure investments makes them a valuable asset in these turbulent markets. Additionally, absolute return strategies that are largely driven by manager kill should perform well under any environment.

“Thirdly, effective risk management is paramount. We have modified our portfolio construction to account for the turbulent environment and this gives us greater confidence we can meet our clients’ risk preferences. Additionally, we see the importance of appointing managers who have a quality bias; our research shows that the benefits of tilting to this investment style can be significant for investors seeking to ensure a target level of retirement income

“Of course our work must be conducted in a cost effective fashion. Our firm will support wholeheartedly innovative solutions aimed at helping our clients meet their retirement income goals.”