2016 strategic asset allocation and risk profiles guide saa and risk profiles... · 3 welcome to...
TRANSCRIPT
1
2016 Strategic
Asset Allocation and
Risk Profiles Guide
2
Contents
Welcome to the 2016 Strategic Asset Allocation and Risk Profiles ............................ 3
Reviewing the SAA framework and risk profiles ................................................................................. 4
Bringing you a wealth of benefits ........................................................................................................ 4
What’s changed as a result of the review? ......................................................................................... 4
2016 Strategic Asset Allocation and Risk Profiles ..................................................... 5
Strategic Asset Allocation ................................................................................................................... 5
Risk Profiles ........................................................................................................................................ 6
2016 Strategic Asset Allocation and Risk Profiles overview .............................................................. 7
Summary of asset allocation changes to the 2016 Risk Profiles ........................................................ 8
Strategic Asset Allocation and Risk Profile changes ........................................................................ 14
2016 Strategic Asset Allocation compared to Ventura and vMAPs .................................................. 15
2016 Strategic Asset Allocation compared to Ventura and vMAPs (continued) .............................. 16
2016 Strategic Asset Allocation compared to Lonsec and Zenith .................................................... 17
2016 Strategic Asset Allocation compared to Lonsec and Zenith (continued) ................................. 18
2016 Risk Profile Questionnaire ............................................................................... 19
Further information ................................................................................................... 20
3
Welcome to the 2016 Strategic Asset
Allocation and Risk Profiles
On 1 March 2016, we’re launching our 2016 Strategic Asset Allocation and Risk Profiles. This follows an extensive review process and supports our commitment to provide you with a best-practice, solid framework to help you meet your client’s investment goals. The 2016 Strategic Asset Allocation and Risk Profiles will replace the strategic asset allocation and risk profiles currently in place and you’ll have until 1 March 2018 to transition your clients to the new framework. We’re committed to making this transition as smooth as possible for you. This guide will provide you with all the details of the 2016 Strategic Asset Allocation and Risk Profiles, including changes to defensive/growth splits, and information on the 2016 Risk Profile Questionnaire. This should be read in conjunction with the 2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide which can be found by visiting cpal.com.au/saa-pis and on the Professional Investment Services intranet. This will give you everything you need to know about how this affects your clients. It also provides information on your next steps and guidance on how to stay on track to meet your compliance obligations.
4
Reviewing the SAA
framework and risk
profiles In May 2015, we undertook a review of our Strategic Asset Allocation (SAA) and risk profiles in collaboration with our primary asset consultant, Ibbotson Associates. Read more about Ibbotson in Appendix 1. The key objective of the review, and subsequent changes, was to ensure that you and your clients had access to a robust SAA framework, risk profiles that better reflected long-term asset class valuations and risk, and a risk profile questionnaire that was simpler to use, more effective and met global best-practice. What formed part of the review
Review the current SAA to determine structure and suitability.
Review of the current risk profiles, defensive/growth splits, appropriateness and objectives.
Risk profile stress testing for different market scenarios.
Review of the underlying asset class allocations.
Possibility of adding a risk profile; better alignment and uniformity of defensive/growth splits and overall objectives.
Forecast expected long-term return and risk assumptions of each underlying asset class.
New capital markets assumptions (CMAs) (Ibbotson Associates) – forecasting asset class returns.
The Risk Profile Questionnaire (RPQ). Read more about the review process in Appendix 2.
Bringing you a wealth
of benefits
The 2016 SAA and Risk Profiles provide you
with a superior mix of asset classes providing
a solid set of building blocks to help reach your
clients’ investment objectives and goals.
Benefits of revising our SAA
and risk profiles
1. Global best-practice solutions to meet your clients’ needs.
2. Strategic asset allocations and risk profiles more in-line with individual asset class expected risk/return over the long-term.
3. More accurately reflects the optimal asset class mix based on long-term asset class valuations.
4. Manage client expectations more effectively, that is appreciating that risk is more than just return variability and that it should also take into account the probability of capital loss and the changes in the economic environment.
5. Better alignment and uniformity of defensive/growth splits.
6. Greater diversification through the introduction of Diversified Alternatives and International Infrastructure.
7. Renamed risk profiles to better reflect the underlying defensive/growth splits.
8. Enhanced RPQ to provide greater insight and clearer understanding of client attitudes to risk and risk tolerance.
What’s changed as a
result of the review? There have been significant changes as a result of the review and topline changes include:
rebalancing the risk profiles and underlying asset allocations
renaming the risk profiles
introducing a new risk profile
updating the Risk Profile Questionnaire (RPQ).
5
2016 Strategic Asset Allocation and
Risk Profiles
Our 2016 Strategic Asset Allocation and Risk Profiles will launch 1 March 2016 and provides a long-term strategy for a set of investment objectives. This has been developed to assist you to meet your clients’ goals and objectives over varying investment timeframes.
Strategic Asset Allocation The SAA is the neutral position for the proportional allocation of capital to respective asset classes in a portfolio constructed to optimise returns for a given level of risk. How much capital is allocated to each asset class is determined by a number of key factors such as long-term (in excess of 10 years) expected risk, returns and correlations of performance between the asset classes. The SAA disregards fluctuations of financial markets through the business cycle. Adaptations of the SAA are also in place that allow for slight variations (+/- 10%) to the assigned neutral positions.
Defensive and growth assets
Defensive assets
Cash
Fixed Interest – Australian
Fixed Interest – International
Diversified Alternatives
Growth assets
Property / Infrastructure – Australian
Property / Infrastructure – International
Australian Shares
International Shares (hedged and unhedged)
Diversified Alternatives
Alternative assets
Alternatives are investments/assets and/or strategies that demonstrate non-traditional characteristics and other characteristics such as their relative illiquidity, complexity, lack of or limited regulatory oversight, and higher management costs.
Alternatives have both defensive and growth characteristics however the asset class has been allocated to the growth sector only within Compass. Read more in our Implementation and Transitions Guide.
Alternative assets may include, but are not limited to:
Hedge funds
Commodities*
Managed futures
Global macro*
Private equity*
Absolute return funds
Structured investments
Unlisted property*
We believe alternative assets provide the opportunity to increase the overall risk-adjusted outcome of portfolios across the risk spectrum and provide an opportunity to access return drivers beyond those of traditional asset classes. *Not currently available on the Approved Product List.
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Risk Profiles In conjunction with our revised SAA, we’ve updated our risk profiles. Changes include renaming our risk profiles and creating an additional risk profile, a “traditional” Defensive Risk Profile.
The 2016 Risk Profiles have been matched to the former risk profiles based on their defensive/growth splits and underlying asset allocations. The Defensive Risk Profile is considered a new risk profile as there was no former risk profile that matched according to its defensive/growth split.
Former risk profiles
Corresponding 2016 Risk Profiles
- Defensive
Defensive Conservative
Moderately Defensive
Balanced
Balanced Growth
Growth High Growth
High Growth High Growth Plus
Defensive (new asset
allocation)
The defensive investor seeks the potential for
a consistent income return by investing in a
diversified portfolio of predominantly income
asset classes, with a small proportion of
growth asset classes. A low risk of capital loss
can be expected, but overall returns are likely
to be lower.
Conservative (formerly
Defensive)
The conservative investor seeks the potential
for a consistent income return and a modest
amount of capital growth by investing in a
diversified portfolio of income and growth
asset classes, with an emphasis on income
asset classes. A low to medium risk of capital
loss can be expected.
Balanced (formerly Moderately Defensive) The balanced investor seeks the potential for a moderate amount of capital growth along with a consistent income return by investing in a diversified portfolio of growth and income assets. A medium risk of capital loss can be expected.
Growth (formerly Balanced) The growth investor seeks the potential for capital growth through investing in a diversified portfolio of growth and income asset classes, with an emphasis on growth asset classes. A medium to high risk of capital loss can be expected.
High Growth (formerly Growth) The high growth investor seeks the potential for capital growth through investing in a diversified portfolio of predominantly growth asset classes, with a small proportion of income asset classes. A high risk of capital loss can be expected.
High Growth Plus (formerly High Growth) The high growth plus investor seeks the potential for capital growth through investing in a diversified portfolio of predominantly growth assets. A high risk of capital loss can be expected.
Read more about the 2016 Risk Profiles in Appendix 3.
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2016 Strategic Asset Allocation and Risk Profiles
overview
This table provides an overview of the defensive/growth splits and underlying asset allocations for the new risk profiles.
Asset Classes Defensive Conservative Balanced Growth High
Growth High
Growth Plus
Defensive Assets
Cash 36% 28% 18% 9% 4% 1%
Fixed Interest – Australian 30% 24% 18% 11% 6% 0%
Fixed Interest – International 19% 15% 10% 5% 0% 0%
Growth Assets
Australian Shares 5% 9% 15% 21% 28% 33%
International Shares* 6% 10% 22% 31% 37% 42%
Property / Infrastructure –
Australian 4% 5% 6% 6% 7% 8%
Property / Infrastructure –
International** 0% 3% 3% 7% 8% 8%
Total Defensive Assets 85% 70% 50% 30% 15% 5%
Total Growth Assets 15% 30% 50% 70% 85% 95%
Alternatives
Diversified Alternatives*** 0% 6% 8% 10% 10% 8%
Additional Information
Minimum investment timeframe
(years) 2 3 5 7 9 10
Objective returns (%) ^CPI + 0.75 CPI + 1.0 CPI + 2.5 CPI + 3.5 CPI + 4.0 CPI + 4.5
* International share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is
recommended. International Shares may also include an allocation to emerging markets depending upon client’s
circumstances.
** Recommended split between International Property and International Infrastructure is 40% / 60%.
*** Diversified Alternatives have been classified as both defensive and growth assets at a ratio of 50% / 50%. Compass SoA
output will however have only a one-line item and allocate 100% to Growth.
^ Consumer Price Index (CPI): 2.50% which is the projected medium to long-term inflation rate (Source: Ibbotson Australia).
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Summary of asset allocation changes to the 2016 Risk
Profiles
The 2016 Risk Profiles have been matched to the former risk profiles based on their defensive/growth splits and underlying asset allocations. The following outlines the high level changes.
Defensive (new asset allocation)
Former risk
profile
Defensive /
Growth split (%)
New risk
profile
Defensive /
Growth split (%)
No risk profile exists N/A Defensive 85/15
Asset allocation changes
The Defensive Risk Profile is considered a new risk profile as there was no former risk profile that matched according to its defensive/growth split, however in this instance we have compared it to the former defensive risk profile. Cash
Cash weighting is 36% (▲15.5%).
This includes all term deposits less than 12 months in duration.
Fixed Interest – Australian and International
Fixed Interest – Australian weighting is 30% (▼13%).
Bias to Fixed Interest – Australian still exists - ratio relative to Fixed Interest – International interest has decreased from 80% / 20% to 60% / 40%.
Overall fixed interest weighting has decreased (▼5.5%) – change remains within +/-10%.
This includes all term deposits greater than 12 months in duration.
Australian and International Shares
Australian Shares weighting is 5% (▼5.5%).
International Shares weighting is 6% (▼2%).
Ratio of Australian Shares to International Shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.
Overall share weighting is 11% (▼7.5%) – change remains within +/-10%.
Property / Infrastructure – Australian and International
Property / Infrastructure – Australian weighting remains fairly consistent.
9
Conservative
Former risk
profile
Defensive /
Growth split (%)
New risk
profile
Defensive /
Growth split (%)
Defensive 75/25 Conservative 70/30
Asset allocation changes Cash
Cash weighting is 28% (▲7.5%).
This includes all term deposits less than 12 months in duration.
Fixed Interest – Australian and International
Fixed Interest – Australian weighting is 24% (▼19%)
Bias to Fixed Interest – Australian still exists - ratio relative to Fixed Interest – International interest has decreased from 80% / 20% to 60% / 40%.
Overall fixed interest weighting is 39% (▼16.5%)
The majority capital is reallocated to Cash, Diversified Alternatives (▲6%) and Property / Infrastructure –International (▲3%).
This includes all term deposits greater than 12 months in duration.
Australian and International Shares
Australian and International Share weightings remain fairly consistent and within +/-10%.
Ratio of Australian Shares to International Shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.
Property / Infrastructure – Australian and International
Property / Infrastructure – Australian weighting remains fairly consistent.
Diversified Alternatives
Diversified Alternatives is 6% from a zero weighting.
10
Balanced
Former risk profile
Defensive / Growth split (%)
New risk profile
Defensive / Growth split (%)
Moderately Defensive 54/46 Balanced 50/50
Asset allocation changes
Cash
Cash weighting is 18% (▲8%).
This includes all term deposits less than 12 months in duration.
Fixed Interest – Australian and International
Fixed Interest – Australian weighting is 18% (▼19%).
Bias to Fixed Interest – Australian still exists - ratio relative to Fixed Interest – International interest has decreased from 80% / 20% to 60% / 40%.
Overall fixed interest weighting is 28% (▼16%).
The majority of this capital reallocated to Cash, Diversified Alternatives (▲8%) and Property / Infrastructure –
International (▲3%).
This includes all term deposits greater than 12 months in duration.
Australian and International Shares
Australian and International Share weightings remain fairly consistent and within +/-10%.
Australian Shares weighting is 15% (▼5.5%) and International Shares weighting is 22% (▲6%) which is fairly consistent and remains within +/-10%.
Ratio of Australian Shares to International Shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.
Property / Infrastructure – Australian and International
Property / Infrastructure – Australian weighting is 6% (▼3.5%).
Property / Infrastructure – International is 3% from a zero weighting.
Diversified Alternatives
Diversified Alternatives weighting is 8% from a zero weighting.
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Growth
Former risk
profile
Defensive /
Growth split (%)
New risk
profile
Defensive /
Growth split (%)
Balanced 35/65 Growth 30/70
Asset allocation changes
Cash
Cash weighting remains similar.
This includes all term deposits less than 12 months in duration.
Fixed Interest – Australian and International
Fixed Interest – Australian weighting is 11% (▼15%).
Bias to Fixed Interest – Australian still exists - ratio relative to Fixed Interest – International interest has decreased from 80% / 20% to 60% / 40%.
Overall fixed interest weighting is 16% (▼14%).
The majority of this capital reallocated to Diversified Alternatives (▲10%), International Infrastructure (▲4%) and International Property (▲3%).
This includes all term deposits greater than 12 months in duration.
Australian and International Shares
Australian Shares weighting is 21% (▼10%).
International Shares weighting is 31% (▲6%).
Australian and International Shares weighting remain within +/-10%.
Ratio of Australian Shares to International Shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.
Property / Infrastructure – Australian and International
Property / Infrastructure – Australian is 6% (▼4%)
International Property is 3% and International Infrastructure is 4% from a zero weighting.
Diversified Alternatives
Diversified Alternatives weighting is 10% from a zero weighting.
12
High Growth
Former risk
profile
Defensive /
Growth split (%)
New risk
profile
Defensive /
Growth split (%)
Growth 17/83 High Growth 15/85
Asset allocation changes
Cash
Cash weighting remains similar.
This includes all term deposits less than 12 months in duration.
Fixed Interest – Australian and International
Fixed Interest – Australian weighting is 6% (▼6%).
Bias to Fixed Interest – Australian still exists - ratio relative to Fixed Interest – International interest has decreased from 80% / 20% to 60% / 40%.
Overall fixed interest weighting is 6% (▼7.5%).
This includes all term deposits greater than 12 months in duration.
Australian and International Shares
Australian Shares weighting is 28% (▼14.5%).
International Shares weighting is 37% (▲6.5%).
Ratio of Australian Shares to International Shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.
The majority of the Australian Share capital reallocated to Diversified Alternatives (▲10%), International Infrastructure (▲5%) and International Property (▲3%).
Property / Infrastructure – Australian and International
Property / Infrastructure – Australian weighting is 7% (▼3%).
Strategic allocation to International Property is 3% and International Infrastructure is 5% from a zero weighting.
13
High Growth Plus
Former risk
profile
Defensive /
Growth split (%)
New risk
profile
Defensive /
Growth split (%)
High Growth 0/100 High Growth Plus 5/95
Asset allocation changes
Cash
Cash weighting is 1% from a zero weighting.
This includes all term deposits less than 12 months in duration.
Australian and International Shares
Australian Shares weighting is 33% (▼17%).
International Shares weighting is 42% (▲2%).
Ratio of Australian Shares to International shares has switched from 55% / 45% to approximately 45% / 55% with International Shares becoming the larger weight.
The majority of the Australian share capital reallocated to Diversified Alternatives (▲8%), International Infrastructure (▲5%) and International Property (▲3%).
Property / Infrastructure – Australian and International
Property / Infrastructure – Australian and International is 8% (▼2%).
Strategic allocation to International Property is 3% and International Infrastructure 5% from a zero weighting.
Diversified Alternatives
Diversified Alternatives weighting is 8% from a zero weighting.
Strategic Asset Allocation and Risk Profile changes The following table illustrates the differences between the former and the 2016 Risk Profiles and the differences between the neutral asset allocation positions.
Risk Profile Cash Fixed Interest – Australian
Fixed Interest – International
Australian Shares
International Shares*
Property / Infrastructure – Australian
Property / Infrastructure – International**
Diversified Alternatives***
Total Defensive
Assets
Total Growth Assets
International
Property International Infrastructure
2016 Defensive (new asset allocation)
36% 30% 19% 5% 6% 4% 0% 0% 0% 85% 15%
2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30%
Formerly Defensive 20.5% 43% 11.5% 10.5% 8% 6.5% 0% 0% 0% 75% 25%
Difference 7.5% -19% 3.5% -1.5% 2% -1.5% 0% 3% 6% -5.3% 5.3%
2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50%
Formerly Moderately Defensive 10% 37% 7% 20.5% 16% 9.5% 0% 0% 0% 54% 46%
Difference 8% -19% 3% -5.5% 6% -3.5% 0% 3% 8% -4% 4%
2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70%
Formerly Balanced 5% 26% 4% 31% 24% 10% 0% 0% 0% 35% 65%
Difference 4% -15% 1% -10% 7% -4% 3% 4% 10% -5% 5%
2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85%
Formerly Growth 3.5% 12% 1.5% 42.5% 30.5% 10% 0% 0% 0% 17% 83%
Difference 0.5% -6% -1.5% -14.5% 6.5% -3% 3% 5% 10% -2% 2%
2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95%
Formerly High Growth 0% 0% 0% 50% 40% 10% 0% 0% 0% 0% 100%
Difference 1% 0% 0% -17% 2% -2% 3% 5% 8% 5% -5%
Numbers highlighted indicate where the 2016 SAA is less than the former SAA. * International share allocation can be a combination of hedged and unhedged strategies; a ratio of 50% / 50% is recommended. International Shares may also include an allocation to emerging markets
depending upon client’s circumstances.
** Recommended split between International Property and International Infrastructure is 40% / 60%.
*** Diversified Alternatives have been classified as both defensive and growth assets at a ratio of 50% / 50%. Compass SoA output will however have only a one-line item and allocate 100% to Growth.
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2016 Strategic Asset Allocation compared to Ventura and vMAPs This table illustrates the differences between 2016 SAA and Risk Profiles and Ventura and vMAPs portfolios.
Risk Profile Cash Fixed Interest – Australian
Fixed Interest – International
Australian Shares
International Shares*
Property / Infrastructure – Australian
Property / Infrastructure – International**
Diversified Alternatives***
Total Defensive
Assets
Total Growth Assets
International
Property International Infrastructure
2016 Defensive 36% 30% 19% 5% 6% 4% 0% 0% 0% 85% 15%
vMAPS Defensive 36% 21% 27% 6% 5% 3% 0% 0% 2% 85% 15%
Difference
vMAPS Defensive 0% 9% -8% -1% 1% 1% 0% 0% -2% 0% 0%
2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30%
Ventura Conservative 27% 20% 18% 11.5% 10.5% 1% 4% 0% 8% 73% 27%
vMAPS Conservative 29% 17% 21% 12% 9% 4% 0% 2% 6% 70% 30%
Difference
Ventura Conservative 1% 4% -3% -2.5% -0.5% 4% -4% 3% -2% -3% 3%
vMAPS Conservative -1% 7% -6% -3% 1% 1% 0% 1% 0% 0% 0%
2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50%
Ventura Diversified 50 13% 17% 16% 21% 20% 1% 3.5% 0% 8.5% 54.5% 45.5%
vMAPs Balanced 13% 15% 18% 21% 15% 5% 2% 3% 8% 50% 50%
Difference
Ventura Diversified 50 5% 1% -6% -6% 2% 5% -3.5% 3% -0.5% -4.5% 4.5%
vMAPs Balanced 5% 3% -8% -6% 7% 1% -2% 0% 0% 0% 0%
.
16
2016 Strategic Asset Allocation compared to Ventura and vMAPs (continued)
Risk Profile Cash Fixed Interest – Australian
Fixed Interest – International
Australian Shares
International Shares*
Property / Infrastructure – Australian
Property / Infrastructure – International**
Diversified Alternatives***
Total Defensive
Assets
Total Defensive
Assets
International
Property International Infrastructure
2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70%
Ventura Growth 70 8% 8.5% 11% 29% 28.5% 1.5% 5% 0% 8.5% 36% 64%
vMAPS Growth 5% 9% 10% 30% 22% 6% 3% 3% 12% 30% 70%
Difference
Ventura Growth 70 1% 2.5% -6% -8% 2.5% 4.5% -2% 4% 1.5% -6% 6%
vMAPS Growth 4% 2% -5% -9% 9% 0% 0% 1% -2% 0% 0%
2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85%
Ventura Growth 90 5% 3.5% 3% 34.5% 33.5% 2% 5% 0% 13.5% 25% 75%
vMAPS High Growth 3% 4% 3% 36% 28% 8% 4% 4% 10% 15% 85%
Difference
Ventura Growth 90 -1% 2.5% -3% -6.5% 3.5% 5% -2% 5% -3.5% -10% 10%
vMAPS High Growth 1% 2% -3% -8% 9% -1% -1% 1% 0% 0% 0%
2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95%
Ventura High Growth 100 1.5% 0% 0% 42% 41.5% 2% 5.5% 0% 7.5% 9% 91%
vMAPS High Growth Plus 2% 0% 0% 42% 32% 10% 4% 4% 6% 5% 95%
Difference
Ventura High Growth 100 -0.5% 0% 0% -9% 0.5% 6% -2.5% 5% 0.5% -4% 4%
vMAPS High Growth Plus -1% 0% 0% -9% 10% -2% -1% 1% 2% 0% 0%
Numbers highlighted indicate where the 2016 SAA is less than the former SAA. * International share allocation can be a combination of hedged and unhedged strategies; a ratio of
50% / 50% is recommended. International Shares may also include an allocation to emerging markets
depending upon client’s circumstances.
** Recommended split between International Property and International Infrastructure is
40% / 60%.
*** Diversified Alternatives have been classified as both defensive and growth assets at a
ratio of 50% / 50%. Compass SoA output will however have only a one-line item and allocate
100% to Growth.
2016 Strategic Asset Allocation compared to Lonsec and Zenith This table illustrates the differences between 2016 SAA and Risk Profiles and the Lonsec and Zenith model portfolios.
Risk Profile Cash Fixed Interest – Australian
Fixed Interest – International
Australian Shares
International Shares*
Property / Infrastructure – Australian
Property / Infrastructure – International**
Diversified Alternatives***
Total Defensive
Assets
Total Defensive
Assets
International
Property International Infrastructure
2016 Defensive 36% 30% 19% 5 % 6% 4% 0% 0% 0% 85% 15%
Lonsec Stable 100% - - - - - - - - 100% 0%
Zenith – N/A No equivalent risk profile
Difference
Lonsec Stable -74% 30% 19% 5 % 6% 4% 0% 0% 0% - -
2016 Conservative 28% 24% 15% 9% 10% 5% 0% 3% 6% 70% 30%
Lonsec Defensive 25% 21.5% 19.5% 8% 8% 4% 0% - 14% 80% 20%
Zenith Conservative 20% 50% 7% 7% 3% 0% 0% 13% 70% 30%
Difference
Lonsec Defensive 3% 2.5% -4.5% 1% 2% 1% 0% 3% -8% - -
Zenith Conservative 8% -11% 2% 3% 2% 0% 3% -7% - -
2016 Balanced 18% 18% 10% 15% 22% 6% 0% 3% 8% 50% 50%
Lonsec Conservative 10% 21% 19% 14% 15% 6% - - 15% 60% 40%
Zenith Moderate 15% 37.5% 15% 15% 2% 2% - 13.5% 52.5% 47.5%
Difference
Lonsec Conservative 8% -3% -9% 1% 7% 0% 0% 3% -7% - -
Zenith Moderate 3% -9.5% 0% 7% 4% -2% 3% -5.5% - -
2016 Strategic Asset Allocation compared to Lonsec and Zenith (continued)
Risk Profile Cash Fixed Interest – Australian
Fixed Interest – International
Australian Shares
International Shares*
Property / Infrastructure – Australian
Property / Infrastructure – International**
Diversified Alternatives***
Total Defensive
Assets
Total Defensive
Assets
International
Property International Infrastructure
2016 Growth 9% 11% 5% 21% 31% 6% 3% 4% 10% 30% 70%
Lonsec Balanced 5% 15% 14% 19% 20% 6% 2% 3% 16% 40% 60%
Zenith Balanced 0% 33.5% 22.5% 22.5% 3% 3% - 15.5% 33.5% 66.5%
Difference
Lonsec Balanced 4% -4% -9% 2% 11% 0% 1% 1% -6% - -
Zenith Balanced 9% -17.5% -1.5% 8.5% 3% 0% 4% -5.5% - -
2016 High Growth 4% 6% 0% 28% 37% 7% 3% 5% 10% 15% 85%
Lonsec Growth 2% 8% 7% 26% 28% 7% 2% 3% 17% 20% 80%
Zenith Growth 16.75% 30% 30% 4% 4% 0% 15.25% 16.75% 83.25%
Difference
Lonsec Growth 2% -2% -7% 2% 9% 0% 1% 2% -7% - -
Zenith Growth 4% -10.8% -2% 7% 3% -1% 5% -5.3% - -
2016 High Growth Plus 1% 0% 0% 33% 42% 8% 3% 5% 8% 5% 95%
Lonsec High Growth 0% - - 34% 36% 7% 2% 3% 18% 0% 100%
Zenith High Growth 0% 0% 37.5% 37.5% 5% 5% 0% 15% 0% 100%
Difference
Lonsec High Growth 1% 0% 0% -1% 6% 1% 1% 2% -10% - -
Zenith High Growth 1% 0% -4.5% 4.5% 3% -2% 5% -7% - -
Numbers highlighted indicate where the 2016 SAA is less than the Lonsec and Zenith allocations.
* International share allocation can be a combination of hedged and unhedged strategies; a ratio of
50% / 50% is recommended. International Shares may also include an allocation to emerging markets
depending upon client’s circumstances.
** Recommended split between International Property and International Infrastructure is 40% / 60%.
*** Diversified Alternatives have been classified as both Defensive and Growth assets at a ratio of
50% / 50%. Compass output will however have only a one-line item and allocate 100% to Growth.
Lonsec
1. Allocate Alternatives to both the Defensive and Growth asset classes at various ratios.
Total Defensive and Growth altered accordingly.
2. Australian Property also include Direct Property. 2% in Defensive profile, 3% in
Conservative to High Growth)
Zenith
1. SAA and risk profiles refer to the Elite Blend model portfolios.
2. Alternatives also include multi-asset strategies
19
2016 Risk Profile Questionnaire
Our 2016 Risk Profile Questionnaire is much simpler to use with your clients. It helps you to understand their attitude to investment risk and develop an investment strategy to reach their financial goals and objectives.
In developing our new Risk Profile
Questionnaire (RPQ), we used Ibbotson’s risk
tolerance questionnaire as the basis as it was
developed by a team of behavioural science
experts including Daniel Kahneman. Daniel
Kahneham is a psychologist notable for his
work on the psychology of judgment and
decision-making, as well as behavioral
economics, for which he was awarded the
2002 Nobel Memorial Prize in Economic
Sciences.
20
Improvements and
enhancements
The new questionnaire consists of eight questions and is eight pages in total, four pages shorter than our current version.
Graphs and tables are used throughout to provide visual guides to the questions.
The educational component has been removed, but information has been updated and is available on Compass and in the Advice and Technical Content Library.
A SMSF/Entity declaration has been added allowing you to use one document for both the individual clients and the SMSF if appropriate.
The RPQ will be available as a pdf and word version and will be coded into the Compass.
Considerations
As the questionnaire only relates to risk tolerance it may result in clients being rated more conservatively than our previous RPQ.
However there is still the ability to vary the profile where it is agreed between the client and the adviser (and it is in the client’s best interests).
Additional questions have been added to the Client Data Form (CDF) to ensure that advisers are prompted to ask clients questions about their previous investment experience and capacity for risk.
Further information
Refer to the appendices to learn more about the 2016 Strategic Asset Allocation and Risk Profiles. If you’d like to know about how this affects your clients, then read our 2016 Strategic Asset Allocation and Risk Profiles Implementation and Transition Guide which can be found by visiting cpal.com.au/saa-pis and on the Professional Investment Services intranet. It also provides information on your next steps, and guidance on how to stay on track to meet your compliance obligations.