The managing director of FIIG Securities, Jim Stening said in Sydney today that Australian investors’ and advisers’ asset allocation tendencies is “disturbing” as it leaves investors more vulnerable to the cycle and this is especially dangerous for retirees.
Speaking to mark the launch of Deloitte Access Economics’ Corporate Bond Report 2018: Australia’s growing appetite for corporate bonds, Mr Stening said: “The interesting thing about this culture that needs to change in Australia [is that] a lot of high-net-worth individuals, the way they invest, is trying to balance cash and equities.
“They kind of jump from one end to the other and try to pick the cycle. I think it’s a lot easier to look at opportunities in the middle to get that targeted return.”
The OECD average pension fund asset allocation to bonds and bills was 40 per cent in 2016. That’s compared with Australia’s 10 per cent.
The report, commissioned by FIIG, surveyed 700 high-net-worth investors and found that the average investor was invested heaviest in property followed by cash or term deposits and then Australian shares.
Arguing that the main barrier to bond investment is a lack of understanding and awareness, Mr Stening said: “We seem to have this love affair with equities and even within the fixed income allocation are tier one hybrids which effectively are equities as well.
“When you consider that, and consider what sort of global best practice is in terms of asset allocation I think Australia's got a lot to learn.”
Continuing, he said the exposure to the cycle is extremely dangerous for people entering or in retirement.
“My view would be that providing investors with guidelines around asset allocation would be a great start. If i want to be really radical, then being completely proscriptive about that would be a great idea.”
Noting the controversy sparked by Labor’s proposed reforms to cash refunds on excess dividend imputation credits, Mr Stening said should the proposal materialise into legislation, then bonds would “come more squarely into the frame”.
Continuing, he said this was especially true given that hybrids are “pretending to be bonds”.
“I think there's probably some work to be done around the tax side of things in this country; it really does promote an investment culture that's probably not appropriate.”