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Govt bonds ineffective post-COVID diversifier

Investors should look beyond government bonds when choosing assets for their portfolio to offset risk post COVID-19, an investment expert says.

Investors looking to diversify their portfolios following the COVID-19 pandemic may need to move away from traditionally low-risk assets such as government bonds, an investment expert has said.

GSFM investment strategist Stephen Miller said the heightened level of market uncertainty resulting from the pandemic, as well as global economic issues such as climate change and inequality, meant investors had to take a less traditional approach to choosing “effective diversifiers” to offset the riskier assets in their portfolios.

“Bond yields are at historic lows, and while listed equities are not cheap, there is a lot happening below the surface. FAANGs are booming, while others like autos, advertising, energy, regional banks, hotels and airlines are languishing,” Miller told a recent media briefing.

“Tectonic policy shifts can alter the relationship between asset prices. There is a suggestion that as government bond yields approach zero they might not be as effective diversifiers for riskier assets in a multi-asset portfolio.

“For investors, this signals a need to diversify portfolios away from ‘vanilla’ beta to other assets, including gold, absolute and unconstrained bond strategies, and active equities, including long/short and hedge funds.”

Also noting the economic effects of the pandemic, Munro Partners chief investment officer Nick Griffin pointed out the technology sector still showed promise from an investment point of view, particularly in relation to digital enterprise, digital payments and e-commerce.

“E-commerce, for instance, has been on a growth trajectory for some time already and this crisis means the shift will happen even faster. From that point of view, Amazon and Alibaba are two names that are set to benefit,” Griffin told the media briefing.

“While a slowdown in commerce during the pandemic means that payments overall will take a hit this year, ultimately the shift to digital will also only accelerate. PayPal is set to be a beneficiary in this space.”

Earlier this month, AMP Australia chief investment officer Lakshman Anantakrishnan said retirees should not consider the recent uptick in investment values as a positive indicator that markets had returned to normal after the COVID-19-driven downturn as the boost had been fuelled by a growth in government debt.

In June, digital investment platform provider SendGold made its gold trading service available to SMSFs after receiving multiple requests from the sector to do so.

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