BUSINESS
Chris Harris, Ord Minnett Buderim.
ASSET ALLOCATION UPDATE
A
s investors, you would be aware that your risk profile lends itself to a particular asset allocation. That asset allocation can take two forms: the first being a strategic position(in other words, a longer-term view of the mix of your investments); and the second being a tactical/dynamic position (in other words, taking a shorter-term tilt either towards or away from a particular asset class). In this article, we provide a high-level outlook on markets and offer some insights into portfolio positioning at this time.
OUTLOOK An escalation of the US/China trade conflict continues to pressure emerging-market assets, while US dollar-denominated assets, including equities, continue to run (albeit narrowly concentrated in the technology and healthcare sectors). We are wary of the divergence this creates in valuation terms, but would like to see clear evidence of the trade conflict cooling before making a tactical shift into emerging-market assets. The US mid-term elections in November are a possible timing point. All other tactical positions remain in place, including an overweight position in cash to help absorb near-term volatility.
STRATEGY We retain a slight overweight bias to Australian equities. Additionally, within this asset class we maintain our existing preferences, namely, global-facing businesses over local, those with a strong
balance sheet and businesses that can handle inflation. We retain an underweight position in the domestic banks, bond proxies and consumer-facing businesses. For international equities, we retain a slight overweight position. We have a positive view of Japan given its central bank’s more accommodative stance on interest rates, and on smaller domesticfocused US companies as they can be sheltered from trade tensions. We retain a neutral position on property trusts, as the sector is trading close to fair value after recovering from the bond sell-off. Additionally, we prefer developers
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“Your risk profile lends itself to a particular asset allocation” with growth options and diversified trusts. We stay neutral on variable-rate securities as trading margins have tightened again. So, lighten longer-dated securities in favour of shorter-dated ones, where the income is attractive but with less capital volatility. On the other hand, we keep a significant underweight on fixed-rate investments due to the ongoing US Federal Reserve policy tightening and as the European Central Bank’s quantitativeeasing program winds down. Finally, we are overweight cash on a strategic basis due to the Reserve Bank of Australia staying on the sidelines, but tactically we are holding extra cash until market volatility subsides.
Chris Harris is an authorised representative (no 435773) of Ord Minnett Ltd, AFS licence 237121. This article contains general financial advice only and does not consider your personal circumstances; you should determine its suitability to you. Before acquiring a financial product you should consider the relevant product disclosure statement. Past performance is not a reliable indicator of future performance. Chris can be reached on 5430 4444.
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