Vanguard, in their April 2015 Commentary, discuss the outlook for the local sharemarket over the next few years and what it means for investment portfolios.
They believe that:
(1) Australia faces a higher risk (but no certainty) of a recession as the mining boom winds down and household and government/ business sector spending remains weak.
(2) The local sharemarket has a heavy concentration in resources (15% of ASX 300) and banks with their high property market exposure. Investors with a strong bias to the local sharemarket could consider reducing their home equity market bias by introducing some global investment diversification to their portfolio.
(3) The USA and some European sharemarkets appear overvalued and so a “tilt” away from these markets would be ideal when investing into global shares.
(4) The $A is likely to devalue further, which is beneficial for offshore investments.
(5) Investors should retain the defensive part of their portfolio despite the current unattractive yields, as protection in times of stress. Some reweighting may be required across defensive sectors.
(6) Avoid “chasing” income yields in exchange for higher risk. Future capital losses could more than wipe out the benefit of a higher income.