Our portfolios had an excellent month in the context of profound weakness in asset markets globally. It was pleasing to see so many of our positions coming together to protect and add value to our portfolios as a whole, while we successfully added to this with our dynamic asset allocation having anticipated and written about how weakness was likely in the month of September.
We continue to believe that over the medium-term inflation pressures will remain somewhat elevated albeit 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, flexible and highly risk-aware in an ever-changing and potentially highly challenging investment climate. We continue to look to diversify the portfolios where appropriate and sensible.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 has commonly relied upon by our industry historically. We will be willing to look at judiciously increasing risk asset exposure on any further meaningful sell-off, but are currently positioning the portfolios to continue to protect capital in the event of further equity market weakness.
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 – while 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 the most leeway to back higher-risk assets on the basis of 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 positioned for persistent inflationary pressures and geopolitical frictions than many over the medium-term as we hold meaningful weightings to ‘hard assets’ in different guises, and continue to expect these to provide valuable return and risk contributions over time, even if they are occasionally volatile. 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. Wars and recent destruction of crucial infrastructure such as pipelines 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 and 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.