Speaking at a luncheon in Sydney yesterday, Perpetual head of diversified strategies Michael O’Dea said many fund managers have been replacing bonds with both infrastructure and unlisted property assets since they are higher yielding and less correlated with the markets.
Mr O’Dea warned, however, that investing heavily in these types of assets means “locking in your returns” and “potentially foregoing upside if equity markets do become cheap again”.
While Mr O’Dea said this could be a sensible investment strategy for those who are early on in the accumulation phase, it may not be as suitable for those approaching or in the retirement phase, given their competing objectives and need for liquidity and flexibility.
Both Mr O’Dea and Perpetual head of investment market research Matt Sherwood agreed that maintaining flexibility in asset allocation is important.
“At some stages, assets are great to buy, much in the same way a great company doesn’t always make a great investment if their evaluations are too high,” said Mr Sherwood.
He said that while some of these new asset classes being developed through financial engineering do provide certainty of cash flow and don’t have the price risk associated with tumbling markets, their lack of liquidity and long-term investment horizons means they are “not a perfect, riskless asset”.
