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Low-volatility equities restrict losses in retirement

Boosting exposure to growth assets that were low volatility and low beta is a more successful way of providing a smoother ride for retirees than using traditional defensive assets.

AllianceBernstein chief investment officer Roy Maslen said according to the firm’s research, an exposure to growth assets of 50 per cent or more made sense for many people, particularly retirees.

The latest Australian Taxation Office statistics showed SMSFs had about 30 per cent of assets in equities, 30 per cent in defensive assets and the other 30 per cent spread across a range of investments.

Further, AllianceBernstein research suggested that at most, exposure to banks should be very modest and exposure needed to be much more diversified, Maslen said.

“It’s possible that there’s more risk in the kind of stocks that SMSF investors are holding than simply in the amount of above-market returns they’re receiving,” he told selfmanagedsuper.

“The question comes down to whether SMSF investors have high enough return assets in their portfolio to meet their retirement needs, however, this could be very case specific.

“If you’re fortunate enough to be very wealthy relative to your monthly expenditure, then you may not need to take on the risk on growth assets because you could make lower-risk investments and still meet your lifestyle needs.

“But for many, we believe they will need a relatively high exposure to growth assets to meet their expectations for retirement.”

He added the fact SMSF trustees held around 30 per cent in cash and term deposits showed intuitively that they wanted lower volatility.

“But they’re giving up so much in return to get that lower volatility,” he said.

“We think there’s a smarter way.”

Last week, during an AllianceBernstein media briefing on the retirement conundrum, Maslen said data provided by administrators demonstrated SMSFs had a very strong allocation to larger-cap stocks in Australia, which also suggested quite concentrated strategies.

“And not only is it concentrated, it’s concentrated in relatively high beta sectors in many cases,” he told the media briefing in Sydney.

“So I think the implication of that is twofold: one is they might consider much more diversification rather than concentration as it’s a great way to protect through volatile times and secondly, having exposure where you’re more [subjected] to low beta, low-volatility stocks.

“Clearly many have done very well out of the banks in recent times, but this kind of strategy is a very natural complement to that because they can keep their stocks that they’re familiar with, but add a lot of diversity and a lot of low beta to their overall portfolio, so I think a combination can be much more practical.”

AllianceBernstein launched its Managed Volatility Equities Fund in March 2014.

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