Lonsec’s Current Positioning
- Slight underweight to risk assets, in particular Australian and Global equities, with a view to adding back to risk assets as valuation opportunities arise.
- Slight overweight to real assets and alternatives as sources of diversification.
- Defensive bond positioning with limited exposure to stressed parts of the high yield market.
- Overweight cash
Portfolio Performance
- With the heavy sell-off across most asset classes so far in March, absolute returns for multi-asset investors will no doubt be disappointing come month end. Despite that, our process has worked as expected with our portfolios outperforming their respective benchmarks month to date. Investor capital has been protected through both our dynamic asset allocation and manager selection processes.
- From a DAA perspective, our underweight positions in both domestic and global equities Manager selection are adding the most value month to date. Our unhedged position in global equities has also helped cushion losses with the falling AUD offsetting some of the negative returns from falling global equity markets.
- Our overweight position in real assets (REITs and global listed infrastructure) has detracted some value however, with even the most defensive parts of the market not being immune to the indiscriminate selling we have seen.
- Manager selection has contributed strongly to performance month to date. The risk control elements within our portfolios are providing good downside protection, namely Antipodes Global Fund and AB Managed Volatility Equities Fund.
- Within fixed income, our preference for defensive fixed income strategies has also been beneficial, helping us avoid the most stressed parts of the high yield market. Pendal Fixed Income has been a stand-out performer having been defensively positioned for some time.
- Within alternatives, our decision earlier in the month to re-align our hedges by reducing our exposure to global macro and alternative risk premia funds in favour of gold added good value. Gold is up 11% since we entered the position. Alternative risk premia as a strategy has continued to disappoint with correlations unexpectedly rising between the underlying strategies
Outlook
- Our DAA models are now showing value opportunities emerging across a number of asset classes. We are looking to add back to risk assets as opportunities arise. As a first step we have rebalanced our portfolios back to our target weights.
- We expect to continue to see a tug-of-war between what will be excruciating macro data versus increasingly aggressive policy stimulus. While there remains a significant degree of uncertainty over the severity and duration of the global COVID-19 outbreak, volatility in markets will remain.
- Our focus is on remaining diversified and liquid. Pockets of risk and opportunity are emerging, and this is really a time where being active across all stages of the investment process is advantageous. Investing in high quality managers who have the ability to assess the quality of the balance sheets of the underlying companies to avoid risk becomes increasingly important as we move into a period where bankruptcies and default rates are likely to rise.
