3 April 2017

Over the past week Australian shares were 2.0% higher. Shares in developed countries were up 0.4% with the US market rising 0.8%. Shares in emerging markets lost 1.1%. The Australian dollar was 0.1% higher at 76.29 US cents. The 10 year bond yield in Australia was 0.05% lower at 2.70% while in the US, the 10 year bond yield closed 0.02% lower at 2.39%. The oil price gained 5.5% to 50.60 US dollars per barrel.

One of the philosophies we focus on strongly is considering the range of possible outcomes. Put simply, we believe it’s a poor decision if we only consider the average or most likely outcome rather than the range and likelihood of possible outcomes.

This philosophy is applied to many of the activities we undertake. For instance, when:

  • considering the outlook for each asset class, we think about the range of possible returns. For example we might expect Australian shares to perform reasonably over the long term but there are scenarios, for instance a ’China hard landing’ and / or ’Australian house price collapse‘, that need to be considered.
  • selecting investment managers to manage our assets, we generate an expectation of how much value they will add. But it’s just as important to consider what a tough period looks like for each manager. We then aim to have a diversified portfolio of managers so a tough environment for one manager does not dominate the entire portfolio.
  • designing retirement outcome solutions we think about the range of market outcomes and the range of ‘mortality outcomes’ or how long you live. If we just focus on the average outcome we might not be appropriately planning for the possible scenario that markets perform poorly and someone lives longer than expected.

Thinking about the range of possible outcomes is at the heart of how we think. However thinking is not enough: we strive to ensure that the portfolios we manage, and products and solutions we design, account for the range of possible outcomes and contribute to our members having a good retirement outcome.

Signing off

David Bell

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg.