Don't bank on yield, says Goldman

Think global and take a calculated risk to maximise your returns in a low interest-rate world, says Goldman Sachs Asset Management.

Self-funded retirees have been screaming for an income stream while wanting as little risk as possible for almost two years.

Things aren’t going to be much different any time soon. According to Goldman Sachs Asset Management (GSAM) Head of Fixed Income, Subash Pillai, low cash rates in developed markets are going to hang around for some time yet. 

To get a decent return across fixed income investments - an important component of any self-funded retiree portfolio - investors are going to have to look outside their home market. This inherently means taking more risk.

Long gone are the days of getting 5 per cent plus on a term deposit. With the real return on a three year term deposit somewhere around 2 per cent, term deposits are no longer an attractive option. As a consequence, investors are being forced to take a more active approach to investment selection and step away from traditional asset allocations.

Still, there are plenty of opportunities in the global market place for income and growth. GSAM's Head of Australian Equities Dion Hershan explains his team takes an opportunistic view to equity selection as opposed to limiting themselves to a value or growth ideology.

On positioning portfolios, Hershan explained he is happy to be overweight cyclical stocks, with a focus on transport, energy and financials. Real estate infrastructure trusts, telecommunications and insurers don’t fare so well, with Hershan underweight these sectors.

The fortune for resources has turned a corner. Hershan and his team are less cautious about the outlook for this sector in the immediate future, noting commodity consumption is stabilising. While China accounts for half of the output, there is plenty of interest outside of this market at present. However in three or four years it will be a different story, with expectations commodities will be in oversupply.

Recently, Goldman has seen institutional investors directing a portion of their funds to investment grade emerging market debt. They too need to find places to park their funds to generate a return to match their goals.