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Super 'hero' moves risk big picture gains: report

INVESTORS who fiddle with asset allocation strategies to protect their superannuation from the volatility stalking global financial markets could be sacrificing long-term gains for a short-term sense of security, a report from investment services group Mercer warns.

INVESTORS who fiddle with asset allocation strategies to protect their superannuation from the volatility stalking global financial markets could be sacrificing long-term gains for a short-term sense of security, a report from investment services group Mercer warns.

David Stuart, head of Mercer's asset allocation team in Australia and New Zealand, said despite the recent turmoil and market volatility, it was too early to determine whether the debt crisis in Europe and America could plunge the global economy back into recession.

"Now is not the time to be a hero investors need to tread carefully and focus on the bigger picture," Mr Stuart said.

"Portfolios should be sitting in the middle at the moment if investors choose to either underweight or overweight their asset allocations they are making a bet on which way the European debt crisis will develop, when we just can't be certain yet," he said.

Mr Stuart said although investors might be tempted to trade the peaks and troughs, this was itself a risky approach.

"In the current environment, we believe investors need to focus on their long-term investment targets."

He said that during the current economic and financial turmoil, rather than switching from typically growth asset classes, such as foreign and Australian equities, to more defensive investment vehicles, such as cash and bonds, investors should maintain a "neutral" stance for their superannuation.

This meant, for example, that if you were many decades away from retirement and the benchmark strategy for your age was a 70 per cent allocation to growth assets and only 30 per cent exposure to defensive investments, then investors should cling to this benchmark.

"Don't try to be clever by cutting your growth allocation or overweighting it," he said.

When it came to particular asset classes the Mercer report, which provides a perspective on relative market valuation and a quarterly market analysis for institutional investors, did find one slightly brighter spot.

"Emerging-market equities have a positive, longer-term structural story, and recent underperformance has restored valuation opportunities," Mr Stuart said.

Both global and Australian small caps retained an "unattractive" rating. "We have warned for some time that small caps were overvalued and investors needed to be careful, which has proved to be the case," he said.


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