Westpac's Advance Investment solutions is shifting money out of stocks, saying the market's recent rally lacks the fundamental strength to continue.

Advance Investment Solutions, the asset management business of Westpac that manages about $18 billion, has shifted money from stocks to alternate investment funds such as hedge and credit funds because the fund manager believes “it is unlikely the market can continue at these levels.”

“The market is simply a yield-driven play,” Advance Asset Management head Patrick Farrell says. “It’s not a sustainable outcome unless the economy and the top line revenue growth for companies improves.”

Advance, says Farrell, has “positioned the portfolio” to account for a “lot more downside risk.”

At current levels, there is hope the market will continue to rise, he says. “But hope is not a good investment strategy,” Farrell says.

Much of the S&P/ASX 200 Index’s recent gains are down to the rising share prices of Australia’s four biggest banks and Telstra. “The only reason they’re rallying is that they’re paying a pretty good dividend,” Farrell says. “The dividend can continue but look at the valuation. How sustainable is the earnings environment?”

The typical Advance ‘balanced’ fund has about 70 per cent of its portfolio invested in stocks, property and alternate investments. Farrell says 20 to 25 per cent of Advance’s funds are balanced funds. His team has shifted 8 per cent of the funds invested in stock funds into alternate investment funds.

And Farrell sees global central bank quantitative easing as insidious for markets as it is creating asset inflation. “Liquidity is supporting a lot of different assets and does lead to bad behavior,” he says. “Imbalances create bubbles.”

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