Quarterly Market Update – Q2 2020

Market and Asset Allocation Views

On the 10th of March, Carnbrea Asset Allocation Committee made a Mid-Cycle DAA review. We moved to underweight Equity, neutral Fixed Income and overweight Cash. We believe it was prudent to lift our defensive Cash weighting to provide capital protection and give us available liquidity to deploy when market opportunities appear.

What’s changed since the Mid-Cycle DAA review?

Overall, our calls for the coming quarter have been more positive on growth assets with increasing overweight position in Alternatives.

We move the underweight positions in the Mid-Cycle back to Neutral i.e. back to their Long-Term settings in US, Australian and Emerging markets Equity. We believe that the mega bear case of a depression is unlikely and whilst the medical dimension of this crisis will have its twists, markets will continually look through the data to the other side of the valley (and not a canyon). If the indices fall markedly from here, we will then re-assess, but our view at that time, the probability of future value will be greater.

With the defensive component of our DAA, we remain Neutral on both Fixed Income and Credit asset classes. The major Central Banks globally heavily intervened to ensure that the price of money is as close to zero as can be effectively managed, this leaves investors who wish to continue to anchor the defensive component of their portfolio safely, with little return.

The Credit asset class is more fragile in light of the pandemic, both in the investment grade and sub-investment grade space. With some companies experiencing credit downgrade and seeking resecure capital, we don’t know quite yet whom, in Buffett parlance, was swimming naked. Thurs, we remain Neutral and prefer quality names.

Dynamic Asset Allocation (DAA) Calls

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