MARKETS SPECTATOR: Ready for rotation

Bad news for equity fund managers, says asset manager and insurer Challenger. More Australians are interested in credit investments.

More than 75 per cent of people over 50 would prefer a 5 per cent annual return, guaranteed for life, over a 6 per cent return that was not guaranteed for life, according to Jeremy Cooper, Challenger’s head of retirement income.

That means there is more scope for Australians to put their money into fixed income investments, says the company. About 600 people aged between 45 and 65 retire every day in Australia, according to Challenger. This age group has more than $900 billion of superannuation funds under management.

Australians devote a little more than 20 per cent of their investments to fixed income compared to the OECD average of more than 40 per cent. Australians devote, on average, more than 40 per cent of their investments to stocks. Challenger forecasts that Australians will increase their investments in credit perhaps at the expense of stocks especially as more people are interested in annuity type products.

Challenger manages about $40 billion of investments in stocks, fixed income, property and infrastructure. In June 2009 it managed just over $15 billion of investments. As the company’s asset under management increase, Challenger says its cost to income ratio is falling and its return on equity is improving.

Today Challenger shares fell 3 cents, or 0.8 per cent, to $3.88. The stock is up 19 per cent in the last 12 months compared with the S&P/ASX200 Index that has gained 16 per cent during the same period and today fell 11.482, or 0.2 per cent, to 4,814.40.