Australian institutional investors should review their asset allocation strategy in light of an expected downturn in Australian equities, according to a report by Michael Karagianis, UBS Global Asset Management senior asset allocation strategist.
“In a future, more challenging investment environment, we expect investors will revisit active asset allocation as a means of enhancing returns and minimising portfolio risk,” the report says. With equity markets booming, especially domestically, the report states investors have given little thought to active management and asset allocation, content to ride the rising markets. But UBS predicts that the probability of the Australian equity market experiencing one year of negative returns within the next three years is as high as 85 per cent. “The recent investment environment of high returns and low risk is atypical based on longer term historical observation…the Australian market looks overvalued at present,” Karagianis said. “We would also expect to see increased interest in alternative non-traditional asset classes as a way of further bolstering returns and mitigating risk.” UBS research suggests that long duration institutional investors could allocate as much as 20 per cent of a portfolio to alternative investments, “and possibly higher, depending on the individual circumstance” .
As super fund CIOs return to work for 2025, all eyes are on two things: Donald Trump’s presidency, and inflation. But they’re not the only issues that will drive investment decisions and returns, and some of them may present an unfamiliar set of challenges for a cohort of investment professionals that has grown up experiencing a particular set of market and economic conditions.
Simon HoyleJanuary 7, 2025
