Market and Asset Allocation Update – December 2024
CiN-sights Asset Allocation - December 2024
Dynamic Asset Allocation Calls (Quarterly view)
“You can’t stop the waves – but you can learn to surf” – Jon Kabat-Zinn.
Thoughts
Australian Equities: With Trump winning the White house and China continuing reflation initiatives we now move back to Neutral. Heading into an election, politicians will not want to scare the horses and keep the domestic economy pumped up. The market is not cheap but Trump slipstream and expected stimuli from China, should be enough. The bigger game may well be the performance dichotomy we expect from Resources vs Banks and despite our uplift to neutral, the Oz market will underperform the US.
US Equities: We upgrade our call. Fundamentally, a Trump inspired momentum should carry for another quarter. We have witnessed a broadening in stock participation with Small, Mid and the S&P 493 collectively doing better. Passive and Retail monies are coming in and should support, but there will be profit taking pull backs. With a robust US economy, preference to Equal Weight strategies and we continue with the small cap overweight.
European Equities: In the face of American “exceptionalism” it is hard to get excited by the Euro story. A stronger Spain/Portugal/Greece fails to offset a weaker Germany and France (both economic and political). Lower interest rates will help sentiment, but the Euro zone will become a casualty in the Trump trade wars.
Emerging Markets: China continues its struggle to get to get to economic escape velocity. Tariff tactics remain a wild card and hence we remain defensive. A strong USD also will not be supportive.
Property: Higher than expected interest rates are being counterbalanced with economic activity remaining at reasonable levels. We remain neutral and play a patient game in watching portfolio rebalancing’s and assessing attractive property equity trades.
Private Equity: Conditions for Private Equity have rebounded with the prospect of lower rates and taxes running through the market spirits. Our preference for managers with a good secondaries’ expertise.
Infrastructure: Mostly on the back of a resetting higher in the interest rate complex, we have moved our position back to Neutral. Preference is for quality unlisted exposures.
Gold: We have got this story right and see it continuing, albeit with periodic corrections as higher bond rates/USD are headwinds. Thematics remain the same i.e. Official reserve diversification etc.
Government Bonds: Recent gyrations have given traders heartburn with Fed forecast to be less accommodative.LT rates have yet to find their natural level as markets pivot from deflation to inflation narratives. Best value is the shorter part of the curve, and we have an aversion to longer dated securities for the quarter. We expect US short rates to be lower in 1 years’ time, but not by much. Long rates could well be higher with 5% back in striking distance.
Private Credit: Overall, we remain comfortable with Private Credit. Yes, margins remain tight with investors purchasing on an all-in yield basis and willingly taking on implied spread risk. As we see economic conditions continue as current, then we will have an ideal environment for credit – not too hot and not cold. However, high yield market is so tight we cannot see relative value and hence stay well away.
Cash: Overweight X 2. With new allocations from a lower Bond (duration) position offsetting equity deployment.
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