Baby boomers reshaping investment landscape

There will be radical changes to the way money is invested over the next three-to-five years, according to AMP Capital, which is preparing to launch a dynamic asset allocation strategy into the retail market by year-end.

Baby boomers are driving change because they’re tired of traditional managed funds which fail to meet their needs, said David Kiddie, AMP Capital chief investment officer for the multi-asset group and specialist investment team.

“We’re about to enter a period of upheaval. The baby boomers are reshaping the investment landscape because they’re less interested in products that aim to beat the market and more interested in products that meet their needs,” he said.

“With interest rates so low, people are going to sweat their cash harder. They have to find different ways to invest their money, which should play into the hands of manufacturers with the right types of products.”

AMP Capital will launch a retail version of its Dynamic Markets Fund later in the year, which will target returns of CPI plus 4.5 per cent (before fees) over five years by investing in a diversified mix of listed assets including exchange-traded funds and futures.

The fund will be managed by Nader Naeimi, head of dynamic asset allocation within the multi-asset group.

According to Naeimi, traditional asset allocation models which define assets as either growth or defensive and which take the view that investing is about “time in” the market, not “timing” the market, are outdated and only work if the investor has a 100-year investment time horizon.

“No one has a 100-year time frame,” he said.

“The market has extremes. There are investors who set and forget their asset allocation, and then there are short-term investors who react quickly to the actions of central banks but dynamic asset allocation funds should not react to news that has already been priced into the market.”

Naeimi said dynamic asset allocation strategies would deliver better returns in the current macroeconomic environment, as the world dealt with major macroeconomic issues including the tapering of stimulus by the United States Federal Reserve, a slowdown in China and the end of the mining boom in Australia.

“Investing is a combination of art and science. It’s not good enough to rely purely on valuations because monetary policy plays a key role. There are fundamental drivers and market drivers at play,” he said. “The risk of getting it wrong is very high when you’re relying on a single driver.”