A flexible approach to asset allocation was vital to securing attractive returns from volatile markets, Schroder fixed income and multi-asset head Simon Doyle said yesterday.
"The way most of the marketplace in Australia is invested is highly problematic," Doyle said of fixed-asset allocation funds.
The dominant 60 per cent equities/40 per cent fixed income portfolio structure had delivered poor results in the past decade or two, but continued to dominate in Australia, he said.
By contrast, an 'unconstrained allocation' strategy offered better returns and less risk, he said.
"We're quite agnostic about what we own. We just want to own the things that give us the best return," he said.
The Schroder Real Return Fund was made up of 33 per cent equities and 20 per cent to 25 per cent cash, with the remainder in a range of debt-based investments, he said.
"What's important to us there is the risk premium that's being paid to us is relatively high - we're in a world where there is a reward for taking credit risk - and there's more stability that comes with taking that exposure," he said.
"You might give away some of the upside, like we've seen over the last couple of months where equity markets have rallied. But through time, we're getting paid in a way where we're taking less risk in the overall portfolio.
"A key aspect of that is the flexibility to change that. The things that should drive what we own are market valuations and, therefore, future return expectations."
The Schroder Real Return Fund, which is based on unconstrained allocation, opened to retail investors about six months ago.
Retail money in the fund stands at about $70 million, dwarfed by about $1 billion in institutional money.
