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 two funds have announced the signing of a non-binding MOU to explore a potential merger.
The board must shift its focus from managing inflation to stimulating the economy with the trimmed mean inflation figure edging closer to the 2.5 per cent target, economists have said.
ASIC chair Joe Longo says superannuation trustees must do more to protect members from misconduct and high-risk schemes.
Super fund mergers are rising, but poor planning during successor fund transfers has left members and employers exposed to serious risks.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
88.01 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
72.60 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
44.46 3 y p.a(%)
4
Pengana High Conviction Equities B
39.12 3 y p.a(%)
5
Pengana High Conviction Equities A
39.05 3 y p.a(%)
