The challenges facing the global economy would lead to more volatility in the markets and more pressure on risk assets over the next two years, according to Doyle.

“Investors cannot be complacent about those bigger picture risks, and, while we relax from time to time, it will take some time before they are off the radar for most investors,” Doyle said.

The panellists said they had realigned their portfolios with a bias towards developed global equities at the expense of Australian equities.

Needham said Ibbotson’s analysis also showed the US was overvalued.

The multi-manager preferred European, UK and Japanese equities rather than the US and developed Asian equities.

All the experts said they were moving, or had already moved to, unhedged equity portfolios, and Doyle conveyed that Schroders was operating two types of multi-asset portfolios.

In the first, a traditional benchmark-relative portfolio, the manager was underweight in both global and domestic equities, and overweight high-yielding credit and cash and other defensive positions.

“Relative to the last couple of years, we are not as defensive as we had been, but we are still defensive,” he said.

In the second, objectives-based portfolio, where Schroders was more benchmark-agnostic, Doyle said Schroders had 30 per cent of the portfolio in equities, with a bias towards global developed equities. Twenty per cent was in cash and the remainder in a number of credit-based investments, ranging from high-yield and hybrid securities through to investment-grade instruments.

Needham said Ibbotson had positioned its portfolio defensively to be underweight growth assets.

Within growth assets, the multi-manager was holding more unhedged international equities, and was underweight Australian shares but overweight Australian real estate investment trusts (REITs).

Needham said Ibbotson also had bought put options to provide some protection for the strategy in the event of a real interest-rate shock, a scenario where interest rates were hiked around the world on the back of concerns over inflation.

Like Doyle, the multi-manager was also holding cash as a hedge against inflation.

Karagianis said MLC’s growth/defensive split was fairly neutral and that there was no rationale for being underweight on risk at the present time.

“Markets are weakening, sure, but the yield available from equity markets is still quite compelling and that is attractive. While we still get that earnings growth coming through, I am happy maintaining that exposure.

“In terms of cash/bond splits I still think cash is clearly a bit more attractive tactically right now.”

Join the discussion