The case for a balanced portfolio

Investing in a globally diversified portfolio with a mix of equities, bonds, alternatives, property and cash has proven a sound strategy for long-term wealth creation says Pendal’s head of multi-asset Michael Blayney.

Contrary to some claims, the balanced portfolio isn’t dead.

Periods of volatility and changing correlations are a normal part of the market cycle, and that is what’s happening now, says Michael Blayney, head of Pendal’s multi-asset investments team.

“While there are clearly a lot of headwinds to equities at present, Australia is fortunate that the local market is more reasonably valued than many offshore markets. Also, the resources weighting of the ASX helps provide a partial hedge against inflation,” Blayney says.

Blayney’s fund remains modestly underweight equities. But he says Australia, in a relative sense, is one of the more attractive markets globally. Rising yields have hurt fixed income investments, but on a forward-looking basis Australian 10-year bonds now yield more than 4 per cent for the first time since 2014.

“This higher-running yield provides an attractive level of income relative to cash, and a cushion against the impact of any further increases in yields,” Blayney says.

“While we retain an underweight allocation to bonds in portfolios generally, we do see Australia as relatively attractive compared to other major bond markets.”

Opportunities

Times of market volatility tend to throw up opportunities.

“While we’re not at the point, yet, of seeing ‘bargains’ like March 2020 or late 2008, the market falls have led to lower valuations across a range of asset classes,” Blayney says.

Now is a good time to rebalance, whereby assets are trimmed after strong price increases and topped up after falls, he says. “It is one of the simplest and best ways to incrementally improve long-term outcomes. In the present environment, this would naturally lead investors to trim cash and alternatives and top up cheaper equity and bond holdings.”

Blayney says equity markets tend to fall about one year in three – meaning they rise the other two.

“Investing in a globally diversified portfolio – with a mix of equities, bonds, alternatives, property and cash – has proven a sound strategy for long-term wealth creation over many decades, through wars, pandemics and a host of economic crises.

Conversely, panicking after large market falls and selling has, generally, been a wealth-destroying activity for investors.

You see classic examples of that behaviour at work in 2008 and early 2020. While we’ve been somewhat underweight equities and bonds in portfolios this year, these are relatively modest positions in the context of our long-term strategic asset allocations.

We continue to believe investors should ‘stay the course’ in respect of their long-term strategies.”

Source: This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at June 22, 2022. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. Read the full article here: pendalgroup.com/education-and-resources/michael-blayney-the-case-for-a- balanced-portfolio