AUI: Diversification sacrificed in pursuit of yield

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Diversification within asset classes as well as within total portfolios is being sacrificed in pursuit of yield, was one of the overriding themes of presentations by Australian Unity Investments (AUI) joint venture fund managers in Sydney today.

Jody Fitzgerald, head of investment product and strategy at Australian Unity Investments, said that by over-prioritising yield, investors were both missing out on opportunities as well as increasing risk in their portfolios.

“There has been an increasing emphasis on high yielding domestic equities and franking credits at the expense of other asset classes and diversification,” Ms Fitzgerald said.

“As well as recognising that diversification between asset classes is important, the AUI joint venture fund managers are focused on diversification within their funds,” she said.

Acknowledging the importance of an exposure to bonds in a well-diversified portfolio, Gavin Goodhand, senior portfolio manager at Altius Asset Management, said there are limited investment options available to investors looking for fixed interest investments that align to environmental, social and corporate governance principles.

“Instead, investors often use hybrid securities, issued by banks and listed on the ASX, as their main fixed interest solution.

“However, hybrids will often have equity-like risks that lack defensive characteristics and do not offer a high level of diversification,” Mr Goodhand said. “Altius is one of the first managers to offer a diversified Australian fixed interest portfolio that aims to align with investors’ personal and social values, while not compromising on investment returns or the defensive characteristics desired from a fixed interest exposure.” 

Discussing the Acorn Capital Asia Small Cap Fund, head of equities Douglas Loh said Asian small caps offered diversification benefits over typical international equity allocations, as well as the potential to outperform them. 

“The higher investment returns offered by Asian small caps are starting to attract the attention of Australian investors. There is no shortage of exciting investment growth opportunities in Asia. By 2030 Asia will represent 66 per cent of the global middle class and 59 per cent of middle class consumption, compared to 28 per cent and 23 per cent in 2009.

“However, without a research-intensive approach it is very difficult to consistently and correctly pick the best stocks,” Mr Loh said.

Don Williams, chief investment officer of Platypus Asset Management, added that despite the yield focus on the local equity market, Platypus’s attention remains on identifying growth and seeking quality, weeding out companies with potential earnings risk.

“We believe fiscal 2016 is likely to be another ‘post-GFC’ year where good stock pickers will be rewarded, as quality earnings will be scarce and valued by investors.

“However, we expect our focus on quality will continue to deliver results,” Mr Williams said. 

When it comes to international exposure, Chad Padowitz, chief investment officer of Wingate Asset Management, said being patient with capital means investors can take advantage of investment cycles. 

“The mining sector decline has captured headlines and stock prices, but not all segments of the value chain are impacted equally. Capex is still required to maintain production.

“At Wingate we favour companies with long-term service contracts and critical parts suppliers,” Mr Padowitz said.

Australian Unity Investments (AUI) is the funds management arm of financial services, health and retirement living services provider Australian Unity. AUI provides specialist mortgage, property, fixed interest and equity products to investors.

AUI’s investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with other specialist organisations.


Jody Fitzgerald
Ph: 02 9256 8753