Our portfolios were mostly positive for the month and have demonstrated better capital preservation in recent months than many, as we emphasise genuine diversification at a portfolio level in an uncertain world rather than one-way bets.
We continue to believe that over the medium-term inflation pressures will remain volatile, while real economic growth will remain weak given a relative paucity of productive investment and large debt loads for many economies. We are still very concerned by geopolitical risks and the massive challenges to the previous period of globalisation and peaceful prosperity. We aim to remain astute and flexible and highly risk-aware in an ever-changing and potentially highly challenging investment climate.Given our outlook, we see the need for precious metals and selective commodities such as energy and resources allocations in portfolios and a more diversified approach than what is commonly relied upon by our industry. We will be willing to look at judiciously increasing equity and credit exposures on a hard landing and cheaper valuations, should the opportunity arise, but are still emphasizing capital preservation and prudent diversification currently given the high risk of global recession and central banks continuing to tighten into a rapidly slowing economy, i.e. central banks risk yet another major policy mistake in the coming month or two which may damage economic growth and asset pricing.
Our Cash Plus portfolio is defensively positioned, while our Short-Term portfolio is relatively defensive, with both designed to be less volatile over shorter-term time periods than our longer duration portfolios – being designed for shorter-term liquidity needs.
Our more medium and longer-term orientated portfolios target returns and manage risk with longer-term time periods in mind. The Wealth Builder’s larger risk tolerance gives us most leeway to back higher-risk assets based on our insights and research, while still managing risk prudently over a longer-term time frame. There is scope here to increase equity positioning in coming months as opportunities present themselves.
Dynamic Asset’s portfolios are designed to be diversified, but focus on investing where return prospects are assessed as capable of meeting the return objectives of the funds over their respective time horizons. This diversification provides useful mitigation against risk over the appropriate time period consistent with each portfolio’s objective, while our active assessment of risk and return can target capital to where it appears most prospectively and appropriately placed. In this way, we believe we are much more forward-looking than most diversified managers, who tend to be much more biased to what has happened (for example, by relying more upon past correlations and volatility - which may be markedly different from the future).
We are better diversified than many portfolios as we hold meaningful weightings to ‘hard assets’ in different guises and alternatives, and expect these to provide valuable return and risk contributions over time, even if they are occasionally volatile individually. We believe large and unsustainable debt burdens, demographics, poor government policies and market interference continue to strangle long-term real productivity growth for much of the economy. This potentially bodes relatively poorly for traditional risk assets and index investing, upon which most traditional investment strategies and super funds are heavily dependent.
We are very concerned by geopolitical risks and the massive challenges to the previous period of globalisation and peaceful prosperity. The increasing risk of major conflicts give further credence to our concerns. We think investors are best served by thinking outside the box in order to better protect and grow their capital, including potentially greater use of selectively chosen value-adding liquid alternatives, along with precious metals exposures and greater weightings to real asset proxies.
We aim to remain astute, flexible and highly risk-aware in an ever-changing and potentially highly challenging investment climate, and will continue to look to take advantage of the volatility and uncertainty and fear to add value to the portfolios through time.