Zenith Sector Review: Multi asset investment bonds dominate for the first time


Dugald Higgins

Zenith has released ground-breaking research that reveals that multi asset strategies are driving a seismic shift in the asset allocation of its highly rated Investment Bond managers. In the 6 years to May 2017, the share of investment bonds allocated to multi asset surged from 10 to 45 per cent, while the traditional mainstays of cash and fixed income almost halved from 58 to 26 per cent.

The shift towards multi asset in investment bonds has reflected general industry trends across other investment and superannuation platforms.

Dugald Higgins, Senior Investment Analyst at Zenith said “Many multi asset funds have evolved to become an increasingly attractive proposition and have come a long way from the relatively fixed asset allocations between equities, bonds and property. Post the GFC there has been a substantial move towards more dynamic asset allocation that’s flexible, with an increased range of non-correlated asset classes such as alternatives.”

The market environment has also helped multi asset become the new black. In a low interest rate environment where it has become increasing difficult to identify attractive valuations in the major asset classes, Zenith believes it becomes increasingly challenging for financial advisers to actively manage asset allocation on behalf of their clients. Many have passed on this responsibility to fund managers by investing in multi asset strategies.

The shift in allocation is also occurring in a time of resurgence for Investment Bonds. Zenith believes the increasing popularity is underpinned by the flexibility and regulatory predictability of investment bonds in contrast to superannuation, which has limited flexibility particularly in terms of caps on concessional contributions. Both vehicles have attractive tax drawcards, although super generally has a modest tax advantage.

While multi asset strategies have become a dominant part of the assets in Zenith’s rated funds, Dugald believes single sector strategies still have a valuable role to play “At Zenith we encourage our clients to also think outside the square in developing client solutions to meet specific objectives or thematic preferences. For example, single sector choices may work best for large scale clients seeking tailored portfolios or specific outcomes – such as socially responsible investing or maximising taxation arbitrage through franking credits – where multi asset portfolios may not be as effective.”

Zenith is the first research house to reveal to changes in asset allocation for investment bonds and the research forms part of the 2017 Sector Report on Investment Bonds. In the Report, the “Highly Recommended” ratings for Austock Life Imputation Bonds and the Lifeplan Investment Bond” were reaffirmed.

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