Strategy View

We have been giving considerable thought to the cash and fixed interest components of portfolios.  We compared fixed term deposits with corporate and sovereign bonds.  Our view is that while corporate and sovereign bonds offer higher returns than fixed interest, the risk associated with possible default (failure) from bonds does not justify recommending them to our clients.  We also compared cash and term deposit returns and as term deposit rates are likely to remain higher than cash rates over the next year, we have decreased our weightings to cash and increased the weighting to term deposits.

We continue to have faith in sharemarkets, particularly the Australian sharemarket, which we believe will reward our (and your) patience over the medium and longer term.  We have somewhat less confidence in listed property, particularly international and have therefore reduced exposure compared to shares.

As the above changes are of a minor nature, they will be implemented progressively at forthcoming portfolio reviews.

This means that level 3 Prudent portfolio stay at 48% defensive assets (cash and term deposits) and 52% growth assets (shares and property). 

We have recently reviewed the asset allocations for portfolios with a higher risk level than 3. Level 4 and 5 portfolios will now have an increased exposure to secure assets and a correspondingly lower exposure to shares. We have also added a sixth level called “high risk”.

Our view is that financial market instability will remain with us for the foreseeable future due to the excessive levels of personal, corporate and government debt that have built up worldwide over recent decades in the developed world. We continue to have particular concerns regarding the significant levels of government debt in a number of European countries and the USA.

We have recently purchased portfolio optimisation software, which will enable us to fine tune our portfolio asset allocations resulting in a modest increase in returns without increasing risk and in some cases enabling risk to be further reduced.

We are now have available a wider variety of term deposit options aiming for higher interest rates and more efficient rollover when term deposits mature.

We are also continuing the process of where-ever possible, moving clients to lower cost investment platforms.

Essentially we continue to maintain a cautious and conservative strategy for client portfolios.