Investors looking to diversify their portfolio beyond Australian equities should instead consider using other investment models to find returns within this market and diversifying the shares they hold, a boutique investment manager has claimed.
TenCap chief executive and chief investment officer Jason Todd said many investors using managed funds have opted for long-only managers, which hold shares to capitalise on the increase in value, but could also be using long-short strategies, which speculate on a stock’s decline, to invest in a wider range of stocks.
“There seems to be an enormous push, whether it’s for institutional clients or high net worth clients, to diversify offshore or into non-traditional assets,” Todd told smstrusteenews.
“I would ask the question: ‘Are you fully diversified in your equity bucket before you start to think about moving outside of that asset class?’
“Long-short, and in particular long-short alpha extension [which maintains full market exposure], gives you much higher reward for the level of risk and I find it perverse that everyone is moving outside the [Australian shares] asset class before they’ve actually looked at the investment options within the asset class.”
TenCap lead portfolio manager Jun Bei Liu said long-short managers were typically very active in their approach and were able to act on the positives and negatives they found in their research.
“When we research a company we generally walk away with a view that we like it or we don’t like it and for a long-only manager they can only utilise the part they like,” Liu said.
“As a long-short manager because I already know I don’t like it, I can do a bit more work on it and take the short side of it as well and benefit from both sides of the share price movement.
“For long-only managers the benchmark is heavily dominated by banks and resources and then a whole long tail of tiny companies, but when people ask me about banks and resources, I don’t have to make that bet because I can short.
“I can choose by the company where I think the share price is going to fall because of the earnings and that might be a small company in the index and I can short it and use that money to buy more of the company I think is going to do well.”
Todd said given this ability to dig deeper into Australian Securities Exchange (ASX)-listed shares, investors should not regard long-short strategies as an alternative approach but as part of their Australian equities allocation.
“Our alpha extension-plus fund, because it has a benchmark of the ASX 200, fits into the core Australian equities position because it is a diversifier and enhancer of returns from that segment of the market,” he said.
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