Wins in all directions
Published in the Herald Sun, February 2013 by Karma Barrymore
Investors should broaden their horizons, writes Karma Barrymore.The share market has stolen the investment spotlight this year, as a rally offers the promise of higher superannuation and investment returns.
However, it’s not all about equities cash and property are also tipped to play a vital role this year.
Australian shares put in a strong 5 per cent return in January; however, the longer term forecast for company earnings this financial year is generally flat.
A decline is expected in earnings per share for the popular resources sector.
So don’t get too carried away with the recent rally, experts say. "Accepting that equities will be the asset class of choice this year, the other side of the coin is valuation," says National Australia Bank Private Wealth strategist Nick Ryder.
"Balancing the best of what our market offers with the breadth of global equities is a critical portfolio decision."
Don’t allocate too much of your investment pie to Australian shares, Mr Ryder says.
However, fund manager Wealth Within chief analyst Dale Gillham believes Australian equities will be the best asset class this year as the All Ordinaries Index moves through 5200 points and potentially up to 5800 by the third quarter.
When it comes to international shares, however, Mr Gillham is also going against the tide.
"For more than two decades I have been questioning the rationale behind Australians investing in overseas shares," he says.
Our market is statistically the best performing in the world and investing overseas involves currency risk.
"I disagree with the industry’s constant push in this area and see no reason to invest in equities offshore this year, as this will increase risk, not returns."
In contrast, Mr Ryder is recommending staying "overweight" in overseas shares but with an emphasis on high quality, cash generating companies.
"Global equity valuations still appear reasonable but like in Australia, large valuation differences continue between expensive defensive stocks and cheaper cyclical shares," Mr Ryder says.
It’s a mixed bag for property this year for listed property and physical assets such as residential property.
Westpac financial adviser David Simon says residential valuations could go either way.
"If there was significant deterioration in credit markets, higher funding costs and reduced rental demand, this may lead to downward pressure," Mr Simon says.
"Nonetheless, further acquisitions, unannounced developments and continued buyback activity may provide upside."
However, yields from real estate are currently higher than the bond market, Mr Simon says.
"We are slightly overweight in this asset class, while maintaining caution," he says.
Wealth Within, however, is tipping a buyer’s market.
"With the lowest loan approval rate in around 10 years, I cannot see property as a place where we will see much growth in 2013," Mr Gillham says.
"That said, given property is not a short-term investment, it is times like this that the best investments are made.
Property investors should expect a flat market in 2013 and possibly 2014; however, I believe investors will dc well in this sector over the next 10 years."
Mr Ryder is "neutral" on listed property trusts, despite expecting strong returns in the medium term of an attractive 7.5 per cent to 9.5 per cent.
Cash is "the best place tc park funds (in the year) ahead", Mr Ryder says.
Despite being the worst performing asset class last year, cash is preferred ahead of fixed rate government bonds, he says.
According to Mr Gillham, cash is not "really an investment" but a place to park money while you wait to invest in growth assets.
"Income yields are generally much better with shares and you have the opportunity for growth," Mr Gillham says.
"That said, cash is more secure and therefore this asset class will have a weighting in the portfolios of those investors who like their capital secured.
"However, I can only see income yields falling further, as interest rates fall, and while the share market is rising bonds will get more and more unattractive."
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