The upward trajectory in equity markets has continued unabated. Markets continue to be supported by low interest rates and central bank liquidity support. The US Federal Reserve’s recent comments that that they would continue their asset purchase program and that interest rates are not expected to rise anytime soon has added fuel to markets. This is despite growing concerns of rising inflation, which has been a major focal point for central banks and investors alike. One of our observations is that markets are disregarding any negative news which is of concern as this is typical behavior in the late stages of a bull market. Uncertainty also remains as to the playbook the pandemic will follow. The spike in the Delta strain of Covid-19 has highlighted the evolving nature of the virus and, as we have seen domestically, it has had a material impact on Australia’s ability to ‘open up’, which has had a detrimental impact on many households and small businesses. Furthermore, geopolitical risk continues to flare up with the recent retreat of the US from Afghanistan creating a power vacuum in that region.
Our asset allocation positioning has been positive for investors as we have maintained an overweight exposure to risk assets such as equities. We are seeing that asset valuations in some sectors are looking stretched as the market has extended its rally. We are looking at ways to further diversify our portfolios as well as looking at opportunities to take profits via portfolio rebalancing where appropriate. The main challenge from a portfolio construction perspective at the moment is that bonds and cash do not look particularly attractive, so the hunt for other diversifying assets is a focus for us. Within our multi-asset portfolios, we have incorporated a range of assets such as gold and alternative strategies to provide diversification from equities and bonds.
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