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Steady trend out of defensive assets set to continue

An exit sign

Investors exiting defensive assets.

The shift of investors out of preferred defensive assets, such as cash and term deposits, was expected to continue in the next six months due to an attraction to value and growth.

The March quarter results for OneVue’s unified managed account platform holdings revealed allocations to cash and term deposits were 26.52 per cent, a decrease of 2.48 per cent on the previous quarter.

Listed trusts experienced a strong jump from 0.70 per cent to 2.29 per cent, loans dropped slightly from -4.43 per cent to -4.69 per cent, while separately managed accounts (SMA) achieved strong inflows, increasing from 23.70 per cent to 25.98 per cent.

OneVue chief executive of strategic relationships Brett Marsh said from a valuation perspective, the earnings yield or dividend yield compared to a risk-free rate was attractive from where it was historically.

“Obviously, the market right now is in a small correction mode, but from July last year we’ve seen a definite shift out of the defensive assets into the aggressive assets,” he said, adding it was likely to continue for at least the next two quarters.

“Despite the fact that there’s always going to be continuing difficulties raised in what’s happening overseas, the difference in yield has driven a lot of clients and advisers to the point of moving back [to being] more aggressive, so it’s either borrowing to invest into geared growth investments or just doing a switch out of defensive [assets].”

Marsh said in the past nine months, those advisers and investors who focused on yield as opposed to price-to-earnings ratios had started to move out of defensive assets and had created their own momentum, influencing others to get on board.

In addition, he said there was also a trend toward SMAs.

“The hunt for yield is still on and [we expect] an increase in hybrids over term deposits as we’ve seen a few people doing that, which will also affect SMAs,” he said.

“It’s not a raging bull market and unlikely to be one, but I think we’ll see current trends continue throughout this year and people are continually looking for clever investment strategies, whether it be hybrids, SMAs or taking advantage of the yield differences between dividends and interest rates.”

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