The alternative is their investment drawings fall and the quality of their retirement deteriorates. And it’s not just their current capital base and the ability to generate income which are hit. If equity markets pull back significantly, the road to recovery can be extended on the way back up.
For example if a $1,000,000 portfolio falls 30 per cent to $700,000, it takes a 43 per cent recovery to return the client to their previous portfolio size ($300,000 / $700,000 = 43 per cent). The moral of the story is capital preservation becomes “king” for many investors approaching or in retirement phase and far too many of these investors carried excess equity market risk in their portfolio in the lead-up to 2008.
Considering these facts, Zenith is firmly of the view that long/short strategies should be strongly considered for most clients given they can help mitigate the potential magnitude of any portfolio declines and generally provide clients a more well-rounded, diversified portfolio.
While Zenith has identified some of the“best of breed” global long/short funds available to Australian investors as part of its due diligence of this sector, we believe there is significant headroom for improvement in the size of the potential pool available for selection.
David Smythe is the co-founder of Zenith Investment Partners, an independently owned, boutique, invest- ment research provider – www.zenithpartners.com.au
