by clicking the arrows at the side of the page, or by using the toolbar.
by clicking anywhere on the page.
by dragging the page around when zoomed in.
by clicking anywhere on the page when zoomed in.
web sites or send emails by clicking on hyperlinks.
Email this page to a friend
Search this issue
Index - jump to page or section
Archive - view past issues
News Bulletin : ADA News Bulletin October 2010
36 OCTOBER 2010 investment insight Typically, an Australian investor will have a mix of shares and fixed interest investments (bonds) as well as some property investments. The key to lowering portfolio risk is to combine assets that have different risk characteristics. Historically, stocks and bonds have a negative correlation and an allocation to each asset class has produced some diversification benefit. However, property has a direct correlation to fixed interest or bonds as they are both similarly affected by rises or falls in interest rates. Managers of futures funds or absolute return funds that utilize highly liquid futures and options are able to construct portfolios that are negatively correlated to the traditional asset classes of stocks and bonds. Absolute return funds are able to produce returns in both rising and falling markets and therefore the addition of a portion of your portfolio to this alternative asset class can effectively reduce the volatility or risk that an investor experiences. The extreme volatility experienced by investors during the global financial crisis has lead many investors to reassess the composition or asset allocation of their portfolios. The graph (Fig 3) shows how adding managed futures or absolute return funds can lower the risk of your portfolio whilst simultaneously increasing your returns. Fig 3. By allocating up to a third of your portfolio to alternative assets you can produce better investment results. Broadening the asset mix of your portfolio can smooth out the returns in periods of extreme volatility or market uncertainty. At the moment the global share market remains volatile. Although Australia is the envy of the developed world with a strong economy and low levels of unemployment it would be naïve to think that Australia is immune from events occuring around the world. The uncertainty created by high levels of sovereign debt and the fragility of the global economic recovery have many investors maintaining a sizeable cash balance in their portfolios. Whilst cash may provide stable returns the high level of taxation on interest income makes it a poor choice for high income investors. Investors need to consider allocating a portion of their portfolio to alternative assets that can enhance their portfolios return whilst simultaneously reducing their overall risk. For my money, rather than “going broke safely”, I plan to increase my exposure to absolute return funds in the very near future. Michael Lannon is the Managing Director of 2020 DIRECTINVEST, an ADA Partner Service specializing in the provision of execution only DIY investment services. Contact firstname.lastname@example.org or call 1800 352 021 Visit www.2020directinvest.com.au This article has been prepared without taking account of your objectives, financial situation or needs; and because of that, you should consider the appropriateness of the advice, having regard to the client’s objectives, financial situation and needs. After a strong performance in 2008 by managed futures and a poor showing by traditional asset types, the optimal portfolio mix now calls for about 1/3 managed futures in a traditional portfolio of stocks and bonds. Optimal Portfolio Mix (01/1985-07/2009) CompoundAnnualROR(%) 9.4 9.2 9 8.8 8.6 8.4 8.2 8 7.8 Annual Standard Deviation (%) Sources: CTA Barclay Index, MSCI World Stock Index, and JP Morgan Wortld Government Bond Index. 6 7 8 9 10 11 12 13 14 34% Managed Futures 33% Stocks 33% Bonds 50% Stocks 50% Bonds 100% Managed Futures Current Contents Dental Outlook the popular ‘how to’ magazine What’s new. An overview of new developments. Implant update. New developments. Keys to implant success. If implant identification is required. 4 steps. Tips on identifying an unknown implant if a problem occurs. Vol 9 No 2 September 2010 An updated material-selection guide for core build ups. Gives latest information on resin-composite and GIC products marketed for this purpose. Plus handy tips. How to make a comfortable 6-tooth upper anterior splint. A practical, economical technique that overcomes the difficulties some patients may experience with other types. Plus pages of more handy tips..... Dental Outlook is published 4 times yearly in March, June, September and December by Dental Outlook Publications Pty Ltd. Subscriptions: 1 year - $128 incl GST and postage 2 years - $240 incl GST and postage Mail to: Dental Outlook Publications Pty Ltd. PO Box 275 Camperdown NSW 1450 Australia (cheque or credit card). For credit card payments: Phone:02 9557 9330, fax:02 9557 9004 or e-mail:email@example.com Independent - has no paid advertising or hidden sponsorship. “broadening the asset mix of your portfolio can smooth out the returns in periods of extreme volatility or marked uncertainty.” www.2020directinvest.com.au/ada | 1800 352 021 100% entry fee rebate on managed funds
ADA News Bulletin September 2010
ADA News Bulletin November 2010