STC switches up strategic asset allocation

The SAS Trustee Corporation (STC) has made changes to its cash, balanced and conservative strategies in line with a declining cash rate and higher interest rate expectations.

Following its annual review, STC lowered its return objective for the cash strategy, which is invested in short-term cash instruments, from CPI+1.5 per cent per annum over rolling three-year periods to CPI+0.75 per cent per annum over the next three years.

STC said it expected central banks — and the United States in particular — to implement policies that would see interest rates rise to much higher levels over the next three-to-five years and required a reworking of its exposure to fixed income assets.

To reduce the risk of negative returns on fixed income portfolios, STC reduced asset allocations to Australian and international fixed interest assets by 5.7 per cent in the balanced option and 10.6 per cent in the conservative strategy, replacing investment with higher exposure to infrastructure and property — assets which were expected to provide income and growth in the medium term despite the rising interest rate environment.

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STC said it did not change the investments' Standard Risk Measure as they contained a relatively small allocation to unlisted assets and liquidity issues.

The fund also introduced dynamic asset allocation ranges for the balanced and conservative options to respond to medium-term relative valuation opportunities and protect against shorter-term market risks.