No doubt 2020 will be a year we will all reflect on at a personal and professional level. For many of us it has been a year of the new. For all of us it has been the first time we have experienced a global pandemic, and from a domestic perspective the first time we have experienced lockdowns. For the younger audience, it has been the first time they have experienced a significant market correction.
We approach the end of 2020 with some hope for optimism despite the increasing challenges we are facing. Progress has been made in the development of a vaccine, consumer confidence has re-emerged, employment figures are improving, and markets have experienced a strong rebound post the March pullback.
But while there is room for optimism, it is too early to crack open the champagne. COVID-19 cases in Australia are back on the rise with the new outbreaks in NSW, whilst in Europe and the US case numbers continue to rise. Domestically, the impact on the economy of fiscal measures such as JobKeeper rolling off remain unknown, and growing political and economic tensions between Australia and China are having an adverse impact on some sectors of the Australian economy. Maintaining a diversified portfolio remains as critical as ever.
Weighing up the positives and negatives, from a portfolio perspective we have become more constructive on risk assets, notably Australian equities. While asset prices are not in cheap territory in an absolute sense, we believe equities continue to be an attractive option relative to bonds and that investors are being rewarded for the additional risk they are taking. On the policy front we believe that central banks will continue to implement measures to keep bond yields and interest rates at low levels. We have also seen evidence that governments are willing to support economies via fiscal measures.
We are also seeing improvements in key economic indicators. As mentioned above, employment figures are improving, domestic house prices are rising, commodity prices have risen, and overall consumer confidence has improved. Based on these trends we have increased our exposure to equities within our Multi-Asset, Listed Diversified, and the recently launched Sustainable portfolios from a neutral benchmark position to a more overweight position, with the allocation being taken from the bonds and cash allocations.
Given this will be the final newsletter for the year, on behalf of the team at Lonsec I would like to wish you a safe and relaxing festive break and take the opportunity to thank you for supporting our portfolios.
