Markets continued their upward trajectory during April which has largely continued unabated since the so called ‘Powell Put’ earlier in the year, with the US Fed chair signalling a pause to further rate hikes. However, market volatility has picked up as the US-China ‘trade war’ has been reignited and the US seeks to precent Chinese telecom manufacturer Huawei from accessing US suppliers.
At the recent Lonsec Symposium, geopolitics was a key topic of discussion and specifically what it means for investors. While we would argue that basing investment decisions on geopolitical issues is problematic, understanding the broader implications of such issues is important, particularly if they have the potential to impact global growth. At a minimum it creates market volatility and, as evident in recent years, we believe that we are experiencing more frequent bouts of volatility attributed to geopolitical issues.
From an investment perspective, while we believe that most markets look to be priced at the fair to expensive range, pockets of relative value are appearing. An example of this is our current active tilt to emerging markets versus developed markets. We also continue to believe that alternative investments have a role to play within a portfolio as a source of diversification. While some parts of the broad alternatives sector have been challenged in terms of performance, if we head into a different market environment, accessing alternative sources of risk and return will become increasingly important. We have been also seeking to further diversify our Multi-Asset portfolio exposure to value style equities via active managed funds. While value has materially underperformed growth in recent years, the addition of a specialist value manager further diversifies the portfolios and, given that we believe that we are getting closer to the cycle, we will see more value opportunities appear.
