Advisers should rethink portfolio construction: La Trobe

La Trobe Financial has urged advisers to broaden portfolio construction beyond traditional equity and bond allocations, arguing that slowing productivity, persistent inflation risks and changing market dynamics require greater focus on real assets and private credit.

Speaking at Advisers Big Day Out in Wollongong, La Trobe Financial director of wealth solutions Michael Watson said investors should avoid relying on strategies that have worked historically without considering whether market conditions have fundamentally changed.

Using the Battle of Waterloo as an analogy, Watson said concentrated investment approaches that once delivered strong outcomes may no longer be appropriate.

"Conditions have changed, what's worked in the past may not work again this time," he said.

Watson said Australia's weak productivity growth and subdued economic expansions meant even modest GDP growth risked becoming inflationary, reinforcing the need for investors to reassess portfolio construction.

"We're range bound for growth. At this exact moment in time any GDP growth greater than what we've recently seen will be inflationary in its own right," he said.

He argued advisers should consider a broader mix of income-generating assets, including commercial property, infrastructure and private credit, rather than relying solely on listed markets.

"People don't invest in equities because they love shares. People don't invest in bonds because they love negative correlations," Watson said.

"They invest because they want tor grow wealth towards and into a long retirement with sufficient income to meet their lifestyle demands."

Watson said concerns surrounding private credit should be viewed in context, arguing the challenges emerging in global markets were more reflective of private equity valuations than deterioration in underlying loan quality.

"We're seeing borrowers proving capable of serving their debt," he said.

"We're not seeing broad-based distress or covenant breaches that point to a systemic credit issue."

He also highlighted infrastructure as an increasingly attractive long-term opportunity, noting its contracted cashflows and inflation linked characteristics align well with retirement portfolios.

Looking ahead, Watson said advisers should focus less on repeating past investment playbooks and more on building diversified portfolios capable of adapting to evolving economic conditions.