If the holy grail of investing lies in the concept of non-correlated return streams with which to build truly diversified portfolios, insurance-linked securities (ILS) should emerge as one of the options for investors; but they are still not well-understood. That was the message that John Wells, co-founder and chairman of London-based Leadenhall Capital Partners, had for The Inside Network’s recent Alternatives Symposium.
Gold’s spectacular rise has been a feature of the markets over the last couple of years, and judging from how the investment banks are sharpening the pencil on their price targets, that trend seems likely to continue, as gold’s ‘NETGO factor’ intensifies.
Don’t be trumped by the White House’s economic nostrums
Hold on tight – that’s the considered opinion of three financial adviser firms in the wake of the market turmoil generated by US President Donald Trump’s economic nostrums.
Since Trump took the reins in the White House in January and made tariffs the centerpiece of his economic strategy, US equity markets have been in freefall – the Dow Jones is down six per cent and the S&P500 7.5 per cent in the past month – while, somewhat perversely, European markets, most notably Germany, have been rising.
Even on the currency front, the almighty US dollar has been losing ground to the euro. Little wonder self-funded retirees are feeling anxious.
Melbourne-based Wattle Partners’ Drew Meredith says any client wanting to shift to a more defensive portfolio will be told – politely – it is a “poor idea”.
“If you’re looking at making changes to your portfolio now, amid a ‘correction’ which occurs, on average, about once a year, then your portfolio likely hasn’t been invested appropriately for the current conditions.
“As retirement-focused investment specialists, our priority is to build resilience into client portfolios, in both income and growth terms, so we use every possible lever to ensure that periods like this don’t interrupt us from the long-term strategy. I would be very wary of changes based on market movements, but rather to make sure they are made within a coherent framework, not ad hoc.”
Meredith even downplays the necessity for clients reassessing their portfolios in the current climate, arguing it something that should be religiously done every quarter to ensure they’re appropriately structured.
“It’s important to have a framework around this to avoid it only occurring when markets fall and potentially resulting in the sale of assets that should otherwise be retained.”
He adds that clients are not panicking – only about five per cent have hit the phones for advice in recent weeks. Indeed, those calling are more likely to be wanting to buy, not sell. To those clients the advice is to hold their fire – neither buy nor sell.
David Leon (pictured), founding partner at Adelaide-based Stellan Capital, says that despite the Trump-engendered market turmoil – he likens tariffs to a mischievous mechanic throwing a wrench into the long-running US bull market – the outlook for the US remains positive.
He’s not suggesting an understanding of what Trump is thinking – “trying to decipher his mind is like trying to nail jelly to a wall”. But there are some constants to Trump’s thinking, of which a primary one is his hatred of taxes, helping explain the tariff policy (raising revenue) and Elon Musk’s spending cuts (saving revenue).
So, the question is – is this a market crisis or a buying opportunity? He believes it’s the latter and is advising clients – many of whom are seeking advice – to stay the course. In his words, “deciding if this is a market crisis or a buying opportunity is like trying to pick the best ride at a theme park on a busy day –any choice is likely to have its own unique thrills, but if you buckle up, you’ll get through it and have a story to tell.”
Leon advances five reasons for his positive outlook on US equity markets. They were due for a correction – “a necessary pitstop after a long, exhilarating road trip”. The US isn’t on the brink of a recession, provided Trump doesn’t decide to cut off all global trade. And if the economy starts to slow, the Fed may cut rates.
He also expects the rebuilding of supply chains will generate significant economic activity, potentially kick-starting a re-acceleration of growth, while the momentum generated by AI and digitisation promises to drive medium to long-term market gains.
For Melbourne-based Partners Wealth Group (PWG) senior financial adviser Andrew Gillon, addressing the current market volatility is a sideshow to an adviser’s primary goal – setting clients’ long-term strategic asset allocation (SAA).
“An appropriate SAA is one of the primary determinants of clients achieving their long-term goals and objectives. (At this time), the SAA should provide the appropriate level of comfort to ‘sit tight’ through periods of volatility caused by market, economic or political surprises.
“I would also reconfirm with my clients what their investment time horizon is … most investors in growth assets, such as shares, should have a long-term investment outlook possibly even beyond the four-year shelf life of Trump’s term.”
He says if clients want to become more defensive during the Trump presidency, it will likely be a significant four-year tactical tilt away from whatever the client perceives to be at risk.
“Nothing is without risk … if equities remain volatile and head into a bear market, then a traditional tilt will be into bonds.”
Gillon’s colleague, portfolio manager (investment) Matthew Leong, adds that PWG’s focus is to build well-diversified and resilient portfolios that offer the best opportunity to achieve clients’ investment objectives.
“Markets are volatile, and we see 10 per cent drawdowns on a regular basis, so this recent sell-off should not necessarily prompt a reassessment of the portfolio construction approach.”
That said, PWG trimmed its exposure to global equities in its model portfolios and separately managed accounts (SMAs) in January as its investment process indicated a potentially tougher environment for markets.
“So, rather than looking to shift to more defensive stocks, we are currently looking for opportunities to add back to growth or risk assets as prices come down and valuations become more attractive.
“There are opportunities beyond the Magnificent 7, with European cyclical stocks and Chinese tech stocks doing well recently on the back of prospects for more positive government policies.”
Gillon concludes that if clients are panicked by market corrections, then they probably have the wrong SAA. “It’s about really understanding what makes your client tick, on whether can they sleep at night. Dare I say it … but sometimes it might be a re-education process to help them understand what they need and how we can assist them with that.”
