If 2014 was a year that saw investors target yield investments, then 2015 should be one of major portfolio diversification as growth in China slows and opportunities in the local market shrink, according to one of the world's biggest wealth managers, UBS.
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David Sokulsky, head of investment strategy at UBS's wealth management arm in Australia, said investors needed to put serious thought into diversifying their assets if they are seeking growth next year. The United States equities market is Mr Sokulsky's top pick. The economy is tipped to grow 2.9per cent due to an expected rise in consumer and business spending. Australian investors who pumped money into US equities this year would have pocketed returns of more than 10 per cent, compared with the 2 to 3 per cent netted from local shares.
China is expected to bookmark slower growth at 6.8 per cent in 2015, compared with 2014's 7.3 per cent.
A key problem with Australian portfolios is their intense concentration in local equities and cash. Research from DIY super fund administrator Multiport showed about 40per cent of self-managed super fund trustees' funds were tied up in Australian shares in June, up from 37 per cent the same time last year.
About 19.3 per cent of their portfolios were lumped in cash, down from about 22 per cent in 2013.
Mr Sokulsky argued it was increasingly important for investors to look offshore to beef up their returns, and to improve their chances of protecting assets in case of economic downturns. He also said investors needed to consider alternative investments such as hedge funds to diversify their sources of returns. "The US continues to be the stand-out opportunity. Australia is pretty stagnant," said Mr Sokulsky on Tuesday, drawing on UBS's CIO Year Ahead 2015 research.
According to UBS, "a recovery in the consumer sector, the recapitalisation of the financial system and the abatement of fiscal headwinds mean we are confident that the US economic expansion will continue in 2015". UBS's research comes after former bank chief David Murray unveiled his final recommendations from the wide-ranging financial system inquiry on Sunday.
Tax breaks for housing, shares and superannuation could be scrapped if the government heeds the inquiry's recommendations.
Mr Murray criticised negative gearing in Australia, arguing it encouraged leverage and speculative investments.sidential investments and real estate investment trusts. He said UBS was advising its clients not to lump any more of their funds into the sector and to seek out alternative and US investments where possible.
