POWERED BY MOMENTUM MEDIA
Smoothing out the bumps for post-retirees
Risk parity funds could provide members a 'smoother ride' in the post-retirement phase, according to Towers Watson.
In a report titled 'Strategies to improve post-retirement investing', Towers Watson pointed to the dilemma faced by members in the post-retirement phase as they consider the trade-off between stability and high real returns.
Due to longevity risk, there is a higher 'risk of ruin' (ie, the danger of running out of money) for post-retirees if they have a low exposure to growth assets, according to the report.
However, high exposures to growth assets can lead to a 'bumpy ride', causing members to switch to more defensive options during volatile periods.
Risk parity funds swap the concentration of risk in equities with other types of risk. This is achieved by using leverage - typically through the use of derivatives - to increase the risk and return of lower-risk assets like bonds.
"The overall result is a portfolio that is actually less risky than one which is overly reliant on a single asset class such as equities," said the report.
Risk parity funds offer a similar return to typical 'growth' funds with a 70/30 equity/bonds split, but they have a different risk premia, according to Towers Watson.
Historical analysis also shows that risk parity funds have been less prone to severe 'drawdowns' than portfolios dominated by equity market risk, according to the report.
Another strategy advocated by Towers Watson to create a 'smoother ride' for post-retirees are 'multi-asset' funds that employ a more active or dynamic approach to managing asset allocation.
These types of funds have a real return target, such as CPI+ 5, but have no static of fixed strategic asset allocation.
"The fund manager seeks to obtain exposure to those asset classes or risk premia that offer the best value at any point in time, and to avoid the most overpriced assets," said the report.
Recommended for you
The lower outlook for inflation has set the stage for another two rate cuts over the first half of 2026, according to Westpac.
With private asset valuations emerging as a key concern for both regulators and the broader market, Apollo Global Management has called on the corporate regulator to issue clear principles on valuation practices, including guidance on the disclosures it expects from market participants.
Institutional asset owners are largely rethinking their exposure to the US, with private markets increasingly being viewed as a strategic investment allocation, new research has shown.
Australia’s corporate regulator has been told it must quickly modernise its oversight of private markets, after being caught off guard by the complexity, size, and opacity of the asset class now dominating institutional portfolios.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
92.15 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
53.24 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
43.15 3 y p.a(%)
4
DomaCom Shoreline North Coogee
36.26 3 y p.a(%)
5
GAM LSA Private Shares AU I
35.87 3 y p.a(%)
