Some of Australia’s top asset allocators have welcomed the opportunities presented by the recent noise in the market, while acknowledging the difficulties faced over the past year.
Speaking at the Morningstar Investment Conference in Sydney on Wednesday, the head of investment strategy at Australian Retirement Trust (ART), Andrew Fisher, said that Australia’s second largest super fund “actually really liked the noise”.
“From the perspective of a very large asset owner, like $240 billion that we’re managing … the structural changes are actually a little bit harder to adapt to,” he said.
“But the noise is actually something that we can trade around the edges of pretty easily because we’re providing liquidity to the market. Typically, when the market wants to overvalue things, we’ll sell it. If they want to undervalue, we’ll buy it.”
Mr Fisher noted that the past 10 to 12 months had been a “challenging period” but added that the amount of noise in the market had been “quite productive” for them from a “dynamic asset allocation perspective”.
Simon Doyle, the chief investment officer and head of multi-asset at Schroders Australia, agreed that noise had been a positive for the investment manager.
“We were in a period where volatility was way too low and suppressed and that mispriced a whole lot of things. So that volatility has actually been really helpful,” he said.
Mr Doyle said that Schroders had embraced both the reset that has been seen in asset prices, which he noted is likely not over just yet, as well as the recent volatility.
“It’s allowing us to be much more active, much more nimble in changing positions. I think that’s been sort of value additive, which we haven’t seen for a while,” he stated.
Meanwhile, Jody Fitzgerald, the head of institutional portfolio management and solutions at Morningstar Wealth, suggested that the current noise in the market had been playing out in terms of valuation adjustment.
“The fair values of assets, they can change underneath the hood because of what’s happening in the environment and the ability of an asset to generate cash flows can change because of change in industry dynamics, or whatever it would happen to be,” she said.
“The key difference though is the change in valuation and that’s really reflecting whether the market has gotten overexcited about an asset or actually if they’ve completely thrown the baby out with the bathwater.”
According to Ms Fitzgerald, Morningstar Wealth’s long-term forecasts provide the firm with an “anchor point” when it comes to making investment decisions.
“Effectively, as a manager, we want to buy a dollar’s worth of assets for 50 cents right, essentially, so we know what is undervalued,” she stated.
“Around that, it is basically understanding where are the points at which we should enter into an asset, whether we should start increasing our allocation to the asset and when we should actually be starting to take profits and I think that’s an element that’s going to become increasingly important in the current macro environment.”
Ms Fitzgerald pointed out that the forward-looking outlook for asset class returns from a headline capital markets perspective is “really not that flash.”
“To generate real wealth for your clients over the next 10 years is actually going to be quite difficult. But what I think we will see is, rather, almost a violent sideways movement of the market,” she predicted.
“We’ll start here, we’ll end there, but it’ll be a roller coaster in between. So having that anchor point of what is actually cheap, what is expensive, and making sure that you’re rebalancing back to that anchor point is really critical.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.