CiN-sights Asset Allocation - July 2025

Dynamic Asset Allocation Calls (Quarterly view)

“Dysfunction Requires Diversification” ….market maxim and…….”Those who believe they can time their way around current events as an investment strategy, get their faces ripped off” – David Bahnsen

Thoughts

Australian Equities: We move to a moderate underweight after a surprisingly strong quarter. Banks have run ahead of valuations (CBA), Industrials collectively are fine but not cheap and resources are underpinned by a hope that Chinese economic growth continues to rebound (35% of all Aust exports goes to China). We see a softer consumer with interest rate cuts only partially counterbalancing. Running dividend yields have softened (was 5% now 3.5%) with Banks and Miners paying relatively less. Stock picking is the skill here.

US Equities: A combination of factors i.e., elevated valuations, over-extended momentum trading (dip-buying bias), Trump’s fiscal economics, weaker USD, expected consumer sentiment softening in a “low hiring – low firing’ labour market etc.- did we forget to mention tariffs? This sees us stand back a notch to a mild underweight. Q2 earnings and outlook statements will be pivotal. Mid and Small caps are much cheaper and will benefit as lower interest rates filter through. The theme here is “prudency”.

European Equities: As represented by a stronger Euro vs USD (+9% over the quarter) we have seen some global redirection of equity flows to the Euro area. Higher spending budgets and GDPs underpinned by Defence spending, global diversification trends see us remain one notch overweight. We still see value.

Emerging Markets: The long-purported property induced recession in China has yet to eventuate as exports counteract. China is cheap but we stay at Neutral. The remaining EM cohort sees us happy at a Neutral setting as we await modelling on the impact of tariffs, when imposed. Lower US rates will support.

Property: Falling interest rates and a stabilisation in property values and economic fundamentals sees us raise our call on unlisted property to Neutral and Listed to a mild overweight. Targeting yield as the driver.

Private Equity: Still retaining our preference for managers with portfolios in secondaries. Falling US rates should relieve some of the pressures as refinancing costs drop. Manager (GP) selection is critical.

Infrastructure: With term rates falling and the market looking to diversify from equities, we see Infrastructure as a beneficiary. Recent strength should continue.

Gold: Happy to remain O/W gold, though expect the short term returns to be muted and solidifying strong recent gains. Longer term we remain bullish and would add on significant pullbacks.

Government Bonds: The confidence of lower short-term rates as promulgated under a more benign inflation scenario will see all parts of the bond curve supported. We did consider move up to an overweight on Bonds with bias to the mid part of the curve. Happy in the case of Aust as inflation expectations evaporate. The US story with potential tariff costs and lower USD remains a risk and a threat of stagflation and pressures the term premium on bonds required to support more issuance. Balancing the 2 - neutral.

Private Credit: We remain neutral on Private Credit. Spreads look to be rangebound and are in “grinding” mode. Whilst there are negative forces about, they have been capped by relatively high reals rates earnt, issuance and extension management, reasonable leverage, stable economic conditions and benign credit defaults. Neutral. High yield bonds have a high correlation to equities and should be seen as income maximisers not diversifiers and with tighter spreads, we stay underweight for high yield.

Cash: We dial back our cash weight to a mild overweight. Preferring deployment to the Aust FI market for a combination of yield, capital gain and income certainty. Lower cash rates will provide less portfolio income.

DAA Calls enclosed proposed are for general investment purposes. Please discuss with Carnbrea the suitability of any recommendation to portfolios and the context of client SAA construct, holdings, return analysis and tax consideration. This document has been prepared and issued by Carnbrea & Co Limited ABN 33 004 739 655 (‘Carnbrea’), Australian Financial Services Licence No 233763. Any advice included in this document is general in nature and does not consider your objectives, financial situation or needs. Before acting on the advice, you should consider whether it’s appropriate to you. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. Derivatives are leveraged products which means gains and losses are magnified, and you may lose substantially more than your initial investment. We do not endorse any information from research providers that we provide to you unless we specifically say so.

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