Increased cash allocations bad news for retirement savings
Limiting equity exposure and upping cash allocations could result in inadequate retirement savings, investment manager BlackRock has warned.
BlackRock Australia's head of scientific investments Michael McCorry said relaxing the long-only constraint that binds many funds to an equity benchmark could increase investment returns and raise confidence in the superannuation system.
"Switching to cash can protect portfolios in the short term, but it can also increase the risk of inadequate returns over the long-term," he said.
McCorry also noted that government bonds were no longer as reassuring as they once seemed. Rather than opting for the appearance of safety by swinging into cash or government bonds, McCorry said investors should give more thought to less constrained equity investing.
"In simple terms, the long-only constraint is a costly shackle on investment managers, because it effectively provides only one way of adding value - that is, outperforming stocks," he said. Typically, research also produces insights into companies that are poised to underperform, McCorry said. Therefore, when allowed to sell these stocks, managers have a second way of adding value for clients, he said.
AUTHOR
Angela Welsh
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