Adverse results from high yield

Consultants underperform cash benchmark

Victoria Papandrea

Thu 05 Jun 2008

Enhanced cash portfolios are increasingly being used by consultants to improve the risk and return characteristics of their portfolios, according to a survey by Deloitte Actuaries and Consultants.

All consultants underperformed the cash benchmark over the last year, the survey found.

"Some consultants are blending in a significant dose of fixed interest or other high yield securities to improve the return they can generate," Deloitte Actuaries and Consultants director Michael Gomersall said.

"But the problem is that the high yield component has had an adverse impact on the performance of these funds and resulted in underperformance."

Many might think that a cash portfolio is a straightforward, low risk investment, generating stable returns, Gomersall said.

"If this were so, then returns should have moved upwards over the past 12 months in line with movements in short term interest rates," he said.

When looking at five year figures, the survey found that moving to high yield securities has proven to be successful only in an environment with stable market conditions and high market liquidity.