While it is particularly difficult to predict how asset classes will perform this year, one thing seems certain – cash may end up as one of the worst performers.
Mr David Bryant, head of Australian Unity Investments, says that investors should take a step back from the turmoil of the current market and review the pros and cons of different asset classes with a clear head.
“It is increasingly unlikely that returns from cash will keep up with inflation in the nearer term, especially for tax-paying investors. Put simply, investors can no longer afford not to look at other options.
“For instance, as the cash rate continues to fall, the opportunities presented by fixed interest investments come into their own.
"In the current environment, well-managed bond funds remain an attractive option. In a difficult fund-raising environment, bond issuers must increase their yields to attract investors, so that quality Government and corporate bonds such as Commonwealth government bonds and ‘triple A’ rated products should continue to provide outstanding returns.
“The sharemarket is another area that investors should consider. While it has been a tough and challenging year for equities, there are clear opportunities for long-term investors who remain in the market.
“Investors should look at the industry sectors that offer opportunities for growth, such as healthcare.
“Whether locally or internationally, they should seek out companies capable of making it through these tough economic conditions in one piece – some companies will be strengthened by the collapse of their weaker competitors,” says Mr Bryant. He added that certain investment products that had started to be seen as old-fashioned when equity markets were booming are now coming back into fashion.
“For example, Australian real estate investment trusts (REIT) were the darling of investors for several years but took a big hit last year, and as a result many investors are now moving back to more stable unlisted property trusts.
“Well-managed unlisted property trusts with sensible gearing levels are a good option offering reliable returns with strong risk management. The greater the transparency around debt and the assets owned by the trust, the better.
“2009 is already shaping up to be a good year for those funds that haven’t paid too much for their property acquisitions and have kept their gearing at conservative levels.
“Another example of a solid, traditional asset class is mortgage funds. Despite having a few tough months, they are likely to perform well in the current market.
“With term deposit returns declining as interest rates decrease, mortgage funds that only invest in quality first mortgages will become more competitive, to the benefit of many investors who are just trying to get back to basics. Besides providing consistent monthly income, mortgage funds offer capital stability and that extra bit of diversification, which should be an important consideration at the moment,” Mr Bryant said.
Australian Unity Investments is the funds management arm of financial services, health and retirement living services provider Australian Unity. It has over $5.2 billion in funds under management*. Its investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with other organisations with specialist expertise.
* as at 31 January 2009
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Further information:
Penny Bold
E pbold@australianunity.com.au