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W & K

Following the Leader

It was interesting to read recent comments from our long term asset allocation consultants Farrelly’s. These confirmed our long held views that many investors and their advisers simply seem to follow the leader when investing. Farrelly’s were commenting on a recent research report that they had received on asset allocation trends and intentions of financial planners.

The summary reported that growing investor and planner confidence had seen money start to flow from cash into growth assets, and that more capital was being allocated to international investments than at any time since the GFC, with US assets especially popular.

To us it seemed strange that so much money had been allocated to cash, at a time when cash returns were at or almost at record lows, and that sharemarkets were at low levels with strong prospects for significant growth.

How can it possibly be that markets look more attractive now after they had risen 168% over four and a half years than at any time during that period? So effectively the market has risen at a rate of over 24% per annum for over four and a half years before the trend for increased fund allocation has occurred! Well, the research report was based on what was happening with Australian investors and advisers.

The same may hold true for the New Zealand situation. Fortunately the New Zealand share market had performed better than the Australian one over that time period. Asset allocations used in New Zealand tend to have a greater percentage of overseas shares than that used in Australia which is more Australian investment centric.

According to Farrelly’s the US market is currently the most expensive major sharemarket in the world. Not overpriced, but offering a tiny premium of around 1% per annum above a very low US Government bond rate.

What is effectively happening is that there is a buy high, sell low mentality occurring which is irrational when it comes to investing. It makes much more sense when advising clients to make disciplined value aware investment decisions.

It will be interesting to review the returns of fund manager for their various multi sector funds. The major difference should reflect their asset allocations. Performance within each asset class also plays a significant role. Hopefully they are not buying high and selling low. If they are, then it will be adversely impacting on your KiwiSaver holdings.


Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.