Investors should adopt a risk-based approach to their portfolio construction in order to safeguard against continued volatility in 2012, global fund manager Standard Life Investments said yesterday.
Australian superannuation funds had effectively gained the cash-plus return outcomes needed to fund members' retirement, Standard Life Investments United Kingdom-based investment director of multi-asset investing David Millar said.
But, now economic conditions have changed, investors need to adopt new strategies in order to constrain risk.
"Absolute return investing offers the potential for consistent, positive returns, providing investment managers with more scope to diversify and deliver returns from a variety of strategies," Millar said.
"Cash or inflation is normally the benchmark with the target return set above this. This means the manager has the freedom to invest in different geographies and markets, investing wherever they see the best prospects."
However, the global fund manager noted volatility in asset markets would create tactical opportunities for investors to build reliable performance portfolios for future outcomes.
"[Absolute return investing] is all about reducing the amount of volatility in portfolios, so you aren't always at the complete behest of what the markets are doing, and you would sleep easier at night," Millar said.
"What the starting point [is] for us in absolute return investing is [to] get rid of the benchmark. At the end of the day, everyone wants to outperform on either cash or, in real terms, inflation."
