Hot Issues
spacer
Our Advent calendar for 2017
spacer
Where are we in the global investment cycle?
spacer
Australia's vital statistics
spacer
12 ways to enjoy summer without spending a fortune
spacer
One in three Aussies travel without protection
spacer
Digital payment options could see you spend more this Christmas
spacer
If you’ve always thought property prices only go up…
spacer
Will Australian house prices crash?
spacer
Where are we in the global investment cycle and what's the risk of a 1987 style crash?
spacer
Money steps for women
spacer
Resources on our site to help you, your family and your friends.
spacer
Australian Dietary Guidelines and healthy eating chart (PDF)
spacer
How to retire, your way
spacer
Prepare for retirement without missing out today
spacer
Be the boss of your cash
spacer
The Australian economy bounces back again
spacer
Should you lend money to family?
spacer
Money mistakes people make in their 50s and 60s
spacer
Australian Dietary Guidelines and healthy eating chart (PDF)
spacer
Eight steps to improved cashflow... and lifestyle
spacer
Powerful Budgeting, cash flow and Super Tools available on our site.
spacer
5 ways Australians will use their tax return this year
spacer
Australia's leading causes of death - ABS
spacer
The threat of war with North Korea
spacer
Six traits of Australians living the dream
spacer
The break higher in the Australian dollar is likely to be limited
spacer
Money can buy you happiness, you’re just spending it wrong
spacer
Key Economic Indicators, 2017 – updated
spacer
Helping your kids buy a home
spacer
From Goldilocks to taper tantrum 2.0
spacer
What’s your debt age?
spacer
Doing a budget is a good idea but ....
spacer
Planning is the key to making it financially
spacer
What to do when you come into money
spacer
Managing your money when you move in together
spacer
Reduce your bills with these household items
spacer
It pays to contribute to your partner's super
spacer
How to cope with losing independence
spacer
Transition to retirement income streams
spacer
The Australian economy hits another rough patch
spacer
Watch out for tax scams
spacer
The three core pillars of this year's budget
spacer
Federal Budget - 2017-18 - Overview
spacer
Federal Budget - 2017-18 - Budget documents
spacer
Make the most of the current super caps
spacer
Five, four, three… it’s not too late to get more in super
spacer
Super changes are coming
spacer
What’s your debt age?
spacer
Australian cash rate on hold
spacer
Super changes this financial year - Dr Shane Oliver - video
spacer
The door is closing on super’s current caps
spacer
Is Donald Trump's honeymoon with investors over?
spacer
Estate planning and why you need a super plan
spacer
What does a comfortable retirement look like?
spacer
Give your career a health check
spacer
Super changes from July 2017
spacer
Changes to the Age Pension assets test
spacer
Keep your money safe over the silly season
spacer
Looking ahead at 2017
spacer
Review of 2016, outlook for 2017 - looking better despite the political noise
spacer
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
spacer
54.2 million worries
spacer
Five tips for happy healthy ageing
spacer
Thinking about managing your own super?
spacer
Sending more to the tax office than you should?
spacer
Government pulls back on proposed changes to super
spacer
Market Update - What to consider when investing in a low return world
spacer
Stop!! Don't do a paper Budget, use our online budgeting tools instead.
spacer
Oliver's Insight - Megatrends
spacer
Value of Advice
spacer
A growing family doesn't have to blow the budget
spacer
Blinded by optimism
spacer
Thinking about managing your own super?
spacer
The investment outlook - it's not all that bad!
spacer
What’s your biggest obstacle to financial success?
spacer
Ageing Parents
spacer
Should you own the roof over your head?
spacer
Be a senior entrepreneur on your own terms!
spacer
Brexit and other key developments
spacer
Brexit wins
spacer
Commentary on major issues - AMP
spacer
Five money habits for a happy financial year
spacer
Remember to factor in parental subsidies at tax time
spacer
Are grandparents giving too much?
spacer
2016-17 Federal Budget - AMP
spacer
2016 Budget in detail
spacer
How (and why) to talk to your adult children about insurance
spacer
Procrastination: Just do it. Eventually.
spacer
Why Australian property won't collapse
spacer
The Lucky Country holding up pretty well
spacer
Have we reached the bottom?
spacer
The evolution of the Chinese consumer
spacer
Retirement rolls around faster than you think
spacer
Pressed for time?
spacer
Changes to the Age Pension assets test
spacer
Women are building financial intelligence
spacer
Heirlooms no more
spacer
Initial market falls precede stronger returns - Shane Oliver
spacer
What exactly is income protection insurance and do I need it?
spacer
A rough start to the year, which could have further to go
spacer
Aged Care - Changes to Assessment of Rental Income
spacer
A bump in the road, then a new start
spacer
New year, new start – are you ready for retirement?
spacer
Review of 2015, outlook for 2016 - Dr Shane Oliver
spacer
We wish you a Merry Christmas for 2015 and a Happy New Year
spacer
Go easy on the plastic over Christmas
spacer
Resolutions for a wealthy future
spacer
The Australian dollar doing what it normally does - overshoot. Dr Shane Oliver
spacer
How to manage volatility in a low return world
spacer
The Australian economy - more help will be needed. Dr Shane Oliver
spacer
Insurance through my super
spacer
Four tactics to build an investment portfolio
spacer
The demand for global infrastructure
spacer
Help achieve your investment goals with dynamic asset allocation
spacer
The Power of Budgeting
spacer
Jump retirement hurdles with a coach
spacer
Preparing for the time of your life
spacer
A Super Loan for all reasons
spacer
Making a smooth transition
spacer
Budget 2015 - some professional opinions
spacer
Australian Government - Budget 2015
spacer
Achieving a comfortable retirement
spacer
Is off-the-plan on the money?
spacer
Should I take my super as a lump sum or not?
spacer
Do you have a key person in your business?
spacer
Tips for success in a competitive job market
spacer
All you need to know about buying at auction
spacer
To sell or not to sell?
spacer
Saving in a material world
Market Update - What to consider when investing in a low return world

 

Identifying market dislocations is something that requires investment expertise

 

 

For some investors, volatility matters. When approaching retirement, volatility tends to matter more owing to sequencing risk. In the video below, we assess some considerations for investing in low return world.

Share market volatility is expected to remain elevated

Investment market volatility is essentially triggered by uncertainty around market fundamentals such as economic growth, earnings, dividends and interest rates; and investor psychology or emotion which can push markets to extremes, particularly when there is a surprise development or change in direction. 

Uncertainty is elevated for three main reasons: 

  • Global GDP growth is likely to remain weak: we expect global growth of around 3% this year, with the risk that it could disappoint to below 3%.
  • Unprecedented global monetary policy responses to persistent weak economic conditions: Almost everywhere in the developed world, interest rates are at or near record lows.
  • Government debt across developed markets is extremely high versus history.

The combination of these factors is contributing to global market uncertainty and investors will have to get used to episodic periods of elevated volatility for a while yet. This presents opportunities as well as risks. 

To put the recent volatility into context, when you’re flying a plane at 30,000 feet – at a comfortable, cruising altitude, you have the ability to absorb some turbulence, but when you are flying over rooftops, the risk of error is heightened. Throughout time, we know that periods of volatility can and do occur in investment markets. Over the next 12-months, in this environment, bouts of volatility are likely to be felt keenly. Remember, we are skimming over rooftops. It is uncomfortable, more uncomfortable than when growth is solid and investment market returns are strong.

Considerations for investing in a low return world

We expect investment returns will remain lower for longer. Fortunately, time is on your side when it comes to investing as it smooths out short-term bouts of volatility. If you are invested in markets over the long-term and can handle the volatility, it’s a good idea to ride out short-term market movements. In saying this, if volatility and limiting capital losses matters, you may consider: 

Taking advantage of market opportunities 

Increased investment market volatility often presents opportunities. When investors panic and overreact, this can force prices beyond reasonable valuation levels. If liquidity in markets also disappears, it often forces prices lower again. The chart below shows that the bouts of volatility stemming from the European debt crisis and fears of Greece exiting the Eurozone actually presented opportunities for active managers. 

Source: AMP Capital, Bloomberg, as at 31 May 2016

Responsive and forward looking investment processes 

For a fund manager, actively managing volatility requires investment expertise in the form of a(n): 

•    Flexible investment framework that enables an investment manager to react nimbly. This may not always be possible through a rigid strategic asset allocation framework
•    Track record of managing through similar periods
•    Investment process that is both responsive and forward-looking

Our Dynamic Asset Allocation process in action Taking a nimble, active and forward-looking approach to asset allocation can be an effective way to respond to market dislocations. Dynamic Asset Allocation (DAA) is used to actively adjust the holdings of investments across asset classes in response to expected market changes. For example, when markets have fallen, we may favour growth assets such as shares, whereas when markets are peaking we may favour more defensive assets such as fixed income and cash across our multi-asset portfolios. The process changes its emphasis depending on the conditions; it can respond to changes in investor sentiment and positioning as well as valuation and economic conditions. 

This chart below highlights asset return expectations in February 2016, as reflected in our dynamic asset allocation models. 

Source: AMP Capital, Bloomberg, as at 29 February 2016

At that time, many markets had sold off violently and were oversold. Our models captured this by increasing forward return expectations across a number of asset classes and strategies. As markets have recovered the forward return expectations have come back down. This demonstrates the importance of being forward looking and opportunistic. 

Source: AMP Capital, Bloomberg, as at 31 May 2016

Final thoughts If limiting downside or risk of capital loss is a priority, your investment manager should be actively managing the risks. Ongoing monitoring of market and macro dynamics and asset class analysis ensures that portfolio allocation decisions can be made quickly in response to changing risk/return profiles. 

 

Author:  Sean Henaghan is the Director and CIO of AMP Capital's Multi-Asset Group responsible for a range of multi-asset portfolios, multi-manager single sector portfolios and Tailored Investment Solutions.
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.