Investors should explore opportunities beyond the ASX20, focusing instead on the Ex-20 index which provides exposure to Australia's future rather than its past.
Three investment experts offer and debate their high conviction thesis on a long-term, deep rooted structural change impacting markets over a decade or more.
Global REITs have been overwhelmed by the rapid rise in interest rates, headlines about the demise of the office, and concerns over bank lending to commercial real estate. However, history is not repeating. These issues mask the reality of an industry in strong shape. With lower financial leverage, well-laddered debt maturities and diversified sources of debt, GREITs’ capital structures are well positioned. The office sector has shrunk to less than 10% of the global REIT benchmark and in its place are sectors such as data centres, healthcare and logistics that are benefiting from long-term secular growth trends. Rising construction costs and lower risk appetite have curtailed new construction volumes while demand remains focused on modern, sustainable buildings. As a result, economic rents needed to justify new construction are rising and many segments of the commercial real estate market could face undersupply conditions in the medium term. Consequently, GREIT valuations are relatively attractive, trading at a discount to private market real estate values and, in some cases, below replacement costs. Hence, as a store of wealth with a growing income stream, GREITs now warrant more allocation.
Market cycles show there is a clear anomaly in the Senior Secured Loans space with record setting yields and compelling risk-adjusted returns. High interest rates may be testing company balance sheets potentially increasing defaults, but sitting a-top the capital stack the risk-adjusted proposition from loans exceeds that available across the debt spectrum. While interest rates will likely remain elevated over the next 12 months, even as they fall, lower yields from loans will be offset by a moderation in future defaults, supporting the case for loans’ superior risk-adjusted returns through the upcoming cycle, much like prior cycles – as sung so memorably by the great Shirley Bassey “…it seems quite clear that it’s all just a little bit of history repeating”.
US investment banker J Pierpont Morgan over a century ago gave a stock market forecast which remains as accurate today as then. “I can tell you exactly what it will do for years to come. It will fluctuate,” he famously said. History shows investors should always expect the unexpected – which simply underscores the benefits of adding private debt to a portfolio. It can deliver a consistent yield with lower volatility than other asset classes to help smooth the inevitable cyclical returns of a diversified portfolio. Without it, investors are more vulnerable to the market vicissitudes that can up-end bond and equity strategies with little notice.
For the last two decades, private equity has consistently outperformed the public market, through market cycles and with less volatility. Private equity has won the debate in the minds of institutional investors, with the majority allocating an overweight position. However, an even greater opportunity for alpha exists in the mid-market, where there is comparatively less capital competing for a broader set of investable opportunities. In 2023, private equity continued to show the superior opportunity for returns in the mid-market. Looking forward, the outlook for private equity is stronger, powered by intergenerational wealth transfer, a stabilising macro environment, a large universe of investable opportunities, and the declining number of public companies.
Higher than desired inflation is now structurally embedded in the global economy, driven by the ‘Four D’s of Inflation’ – Decarbonisation, Deglobalisation, Demographics and, new for 2024, Deficits. Critically, the boom-bust inflation cycle of the 1970s gives a useful historical parallel, providing investors insight into the coming decade. Such an environment of whipsawing volatility and low real returns provides opportunity for those prepared, with Australian equities - by virtue of its make-up - standing to provide a natural hedge to ongoing volatility and structural high inflation ahead. But beware, understanding ‘who is in the Chair’ at the Fed, RBA and RBNZ is now more important than ever.
The Magnificent 7 drove markets higher in 2023, accounting for roughly 60% of the S&P500’s 26% return last year. These seven stocks now account for a record 33% of the S&P500’s total market capitalisation. Their market cap is roughly equivalent to the combined value of the UK, Japanese, and Canadian equity markets. The technology sector has now eclipsed its all-time high relative to the S&P 500, exceeding its dot.com bubble highs. So this begs the question – is this a bubble and what is the risk of another tech wreck? In fact, this is not a case of history repeating itself. Stock performance has largely been driven by earnings growth, and valuations are at reasonable levels, vastly different to the dot.com era. And, the outlook remains positive with AI driven spending likely to support earnings growth over the next few years. In short, the technology sector remains an attractive investment opportunity over the next three to five years.
Our diverse panel of experts debated the high conviction propositions they heard during Markets Summit 2024 and the portfolio construction implications.
The Nanuk New World Update (20 Feb 2024, Perth) has been assessed and accredited by Portfolio Construction Forum for Continuing Education (CE/CPD) hours. Delegates must confirm their attendance in order to receive CE/CPD accreditation.
The Nanuk New World Update (20 Feb 2024, Hobart) has been assessed and accredited by Portfolio Construction Forum for Continuing Education (CE/CPD) hours. Delegates must confirm their attendance in order to receive CE/CPD accreditation.
Established in 2016, Portfolio Construction Forum Finology Summit is THE behavioural finance ('fin") and investor psychology ("ology") program of the year. It will help you better identify and understand how your own and other people's different investing biases, beliefs and behaviours impact investment markets and portfolio construction practices - and therefore, investment outcomes - to help you build better quality investor portfolios.
Much of current economic and markets thinking is rooted in the post-GFC era. Practitioners need to let go of that history and embrace the fact that four trends are fundamentally changing the long-term outlook for markets.
This paper provides a comprehensive review of the psychology of attention and its relationship to key economic concepts (utility, risk-taking, social preferences, and learning), and the emerging role of AI in the modern economy.
I was amazed several years ago to learn that the class I was teching believed that 90% of a fund's returns are due to asset allocation. Having once been a major promoter of this myth, it is important I contribute to its eradication.
The Nanuk "New World Fund Update" Lunch (31 Jan 2024) has been assessed and accredited by Portfolio Construction Forum for Continuing Education (CE/CPD) hours. Delegates must confirm their attendance in order to receive CE/CPD accreditation.
The Nanuk "New World Fund Update" Webinar Jan 2024 (on demand) has been assessed and accredited by Portfolio Construction Forum for Continuing Education (CE/CPD) hours. Those who attend online on-demand must complete a CE Quiz to receive CE/CPD accreditation.
The Nanuk "New World Fund Update" Webinar (30 Jan 2024) has been assessed and accredited by Portfolio Construction Forum for Continuing Education (CE/CPD) hours. Delegates must confirm their attendance in order to receive CE/CPD accreditation.
The Evergreen Asset Allocation Committee Meeting Jan 2024 (25 Jan 2024) has been assessed and accredited by Portfolio Construction Forum for Continuing Education (CE/CPD) hours. Delegates must confirm their attendance in order to receive CE/CPD accreditation.
