Portfolios should maintain their current level of exposure to equities, according to 52 per cent of delegates at the Australian Superannuation Investment Conference. They were voting before a session on the “equities conundrum,” at which speakers from a super fund, fund manager and consultancy presented their views on the outlook for equities, and their place in current portfolios.
While the majority of delegates favoured the status quo, 22 per cent said they believed funds should increase exposure to equities, while 26 per cent voted to decrease.
One-trick pony is a volatile ride
Damian Lillicrap, head of investment strategy at QSuper, said his fund currently had an allocation of 60 per cent of its portfolio to equities and had been successful in achieving its consumer-price-index-plus-four objective.
“But I think it’s more about the interaction between asset classes to deliver a smoother ride to members, because if growth risk is your dominant risk, then your fund will be a one-trick pony and members will have a volatile ride,” said Lillicrap.
He also said QSuper was performing better since it moved away from “peer risk” last year and opted instead for more flexible asset allocations.
Is history reliable?
In the same session, Rob Hogg, senior consultant at Frontier Advisors, said analysis by academics at the London School of Economics had shown that Australian equities had grown 7.5 per cent a year from 1900 to 2010, delivering a compound growth of 2500 times, way ahead of South Africa, the next best with compound growth of 2100 times.
“So if history is any guide, the next 10 years should deliver some reasonable returns,” said Hogg.
Andrew Sisson, from Balanced Equity Management, told the conference that any historical analysis would show that “in the 11 decades since 1900, there was only one decade when Australian equities delivered a negative return, and that was in the 1970s.”
“Even given our recent experience, if you look through the rear window, you will have seen some losses. But if you look forward through the front windscreen, you will see a better story.”
Style is all about options
Delegates were also asked if they favoured a change in investment style: 28 per cent said they would move to more active management, 22 per cent favoured more passive management, while 52 per cent said they would “explore other options”, such as taking investment management in-house or allocating more to other asset classes.