We had the pleasure of again attending the IBR Asset Allocation Conference in Sydney last week. The key topic was continued investment volatility and managing that going forward. There was a really diverse mix of presenters ranging from senior academics from Australian University Business Schools, Economists, Portfolio Managers from Institutional Investors both Commercial and Not for Profit. There were Australian based and Multi-National Institutions, Boutique asset managers, as well as service providers such as Asset Consultants, Fixed Interest Dealers and Index providers.
The recurring themes seemed to coincide in the saying, “This is about as good as it gets for the next few years, but the good news is that it probably won’t get much worse in the same time frame”…..excluding the possibility of a strange US Presidential Election outcome.
The world economy has been bumping along in the “Post GFC” reality of extraordinarily low interest rates, Quantitative Easing (QE) with little sign of inflation appearing despite the massive fiscal stimulus. Growth has been constrained by the persistently high debt levels around the globe.
Volatility and instability in equity markets and commodities has been the norm rather than the exception. Fixed Interest markets have been living in fear of the inevitable, eventual switch from QE and the return to a normal yield curve from such a low (in some cases a Sub zero) base. How can investors control the investment volatility in a portfolio in this current climate?
Against this backdrop we presented the case for an allocation to alternatives, particularly those (such as insurance linked securities) whose non-correlation to traditional markets is well demonstrated. A positive note which provided attendees with the opportunity to discuss their approach to investing in alternatives. An asset allocation strategy which seems to be increasing in popularity again with many investors seeking true diversification.
I will close with some sage advice from a panel discussion about dynamic asset allocation strategies in a diversified portfolio and the risk management strategies you might consider.
Three questions to consider ex-ante (before you embark on your investment portfolio construction endeavour).
- What does “success” look like?
- What does “acceptable failure” look like?
- What does “unacceptable failure” look like?
As always we wish you well in your investment endeavours and would be happy to discuss any aspect of our service offerings with you. You can contact us.