With a huge array of government initiatives reshaping super in recent years, none was more keenly watched than the inaugural performance test of 80 MySuper products.

The regulator found that 13 of the 80 products assessed were deemed to have underperformed the benchmark by more than 50 basis points. Since August when the results were released, 77% of these providers have announced their intentions to either merge or exit the industry.

This year, we expect to see the second round of MySuper results likely causing some MySuper solutions to be prevented from accepting new members. This will be accompanied by the first assessment of Choice options under the test. SuperRatings has conducted analysis of the industry’s performance to 31 March 2022, using its newly developed Performance Test iQ tool. Analysis was completed on over 650 options across Trustee Directed Products, including Retail, Industry, Corporate, and Government funds, excluding MySuper products.

The results from our analysis suggest that approximately 20% of options were estimated to fail the test, which allows for annualised underperformance of the benchmark of up to 50 basis points.

Option Type % Estimated to Fail
Capital Stable (20-40) 25%
Conservative Balanced (41-59) 20%
Balanced (60-76) 17%
Growth (77-90) 16%
High Growth (91-100) 26%

Breaking down the analysis further, SuperRatings found that all option types are facing challenges. In particular, options with growth assets, such as equities, making up between 91-100% of assets held were most likely to fail the test, with 26% of these options estimated as failing based on performance over the 8 years to 31 March 2022. Capital Stable options with between 20-40% growth assets are also facing a challenge to pass the test, with around a quarter of these options estimated as failing.

As the performance test captures investment returns over an eight-year period, funds have limited ability to shift their relative long-term position against the benchmark. However, with the test only accounting for the most recent level of fees charged, funds do have the ability to make fee changes to improve their performance test outcomes.

SuperRatings has been tracking an estimate of the benchmark representative administration fees and expenses (RAFE) based on the performance test calculation. While the test appears to be having an impact in terms of reducing fees for the MySuper products which were tested last year, our analysis shows that the Trustee Directed Product RAFE has remained flat.

 

We observed a decline in the RAFE for MySuper products each quarter since the start of the financial year, however the Trustee Directed Product RAFE saw an increase in the September quarter, followed by a return to the same RAFE in December 2021 and has remained stable since.

Since the results of the first test were published, we have observed an increase in funds seeking to simplify their investment menus, as well as a faster pace of merger announcements and shorter times for mergers to reach completion. While there are clear cost savings for funds in managing fewer options, the benefits of member choice are real, with highly engaged members particularly valuing additional choice. We suggest funds take a balanced approach when assessing the viability of offering additional options to ensure members achieve the best possible retirement outcomes.

The first performance test has had a significant impact on the future of those products which failed. Having an industry wide benchmark gives funds a clear target with significant potential benefit for members, however ensuring the test is appropriately capturing the nuances of the range of investment options in the industry remains a challenge. The regulator will be releasing the results of its second annual performance test later this year, with the industry closely monitoring potential outcomes. As the industry awaits the results of the second test, SuperRatings continues to use its comprehensive database and deep research capability to gain key insights into super fund performance and the future outlook for the industry.

In this video, Lukasz de Pourbaix, Executive Director and CIO of Lonsec Investment Solutions provides an update on what’s been happening in the markets, with market volatility and inflation. Lukasz then explains what this means for the Lonsec portfolios.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

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A look at Chinese equity managers’ performance over 18 months to March 2022.

To say that the last several months have been difficult for the investment landscape within China would be an understatement. For the 18 months ending March 2022, the MSCI China NR Index (measured in AUD) has returned -28.7% on a cumulative basis. On a monthly basis, the Index has ended in red in 11 of the 18 monthly periods. Given China’s prominence in the Emerging markets and Asia ex Japan Indices, performance for these broader Indices (measured in AUD) also remained weak generating cumulative returns of 3.6% and -0.8% respectively. The period was marked by a series of regulatory developments, each one more extreme than the prior in terms of testing investor patience, discipline, and appetite for Chinese equities. The ‘common prosperity’ theme, a rhetoric increasingly promoted by the Chinese Communist Party (CCP) during this time, permeated strongly in all instances.

This report looks to delve into the key developments within China over the analysed period (October 2020 to March 2022), analyse the evolution of Chinese/Hong Kong stock holdings and the aggregate allocation of a majority of Lonsec’s Global and Emerging Markets equities rated universe alongside the associated performance outcomes for the period. It concludes with an outlook of the investment landscape moving forwards.

Thunder, lightning, and everything frightening!

A quick Covid-19 recovery through early and mid-2020 led the Chinese market to surpass its 2015 highs of US$10trn ($14trn). However, the euphoria quickly fizzled out as the first wave of regulatory crackdowns surfaced. After a four-month anti-monopoly probe, Chinese regulators fined Alibaba a record RMB 18bn (US$2.75bn) and suspended (eventually cancelled) the upcoming IPO of its financial arm, Ant Group to tackle a long simmering problem in the tech sector: anti-competitive practices. During this time, China enforced an antitrust guideline for the “platform economy” giving more teeth to the first major revisions made to the Antitrust Law (the second public consultation was completed in November 2021) in 13 years. A new antitrust bureau was also launched in November 2020, responsible for conducting antitrust investigations and oversight into M&A activities and market competition.

The subsequent sell-off in internet stocks, although initially short lived, signalled the start of a sharp reversal of a long-term uptrend of large cap technology companies. Throughout the year, other internet conglomerates including Tencent, Baidu, ByteDance, Meituan and Didi Chuxing were also fined for violating the anti-monopoly law resulting in significant share price corrections.

The interventions were not isolated to the technology sector however, reforms also took place in the education, online gaming and property sectors precipitated by a desire to prioritise social stability and common prosperity objectives. The education sector bore the full brunt of policy actions in July 2021 when the State Council released the ‘double reduction’ policy guidelines to address the burden of an excessively competitive academic success culture. The stipulations contained within overhauled the entire industry structure effectively transforming it into a non-profit sector overnight and resulting in a swarm of tutoring companies going bankrupt. Share prices of the three largest players New oriental education, TAL education and Gaotu techedu fell 54%, 71% and 63% respectively on the day of the announcements and have since been effectively worthless (down 92% on average for the 12-months ending April 2022).

Besides taking aim at the education sector, China’s focus on the growth and development of the next generation also spilt over to the online game industry. In August 2021, China limited the amount of time children can spend on video games to avoid gaming addiction, which may harm their academic and personal development. This had significant implications for the world’s largest online gaming market and materially impacted the fortunes of companies such as Tencent and NetEase.

Volatility returned in the last quarter of 2021, as the property sector, a key driver of economic growth, local government funding, and investment savings for a large portion of the Chinese population, succumbed to stringent policies to curb speculation and credit expansion. The latest rules included further restrictions on developer financing and home purchases, serving a significant blow to the overall industry. Additionally, China Evergrande, one of China’s biggest real estate developers, found itself in a headline-making liquidity crisis eventually defaulting on US$1.2bn of its offshore debt, followed quickly by other lower quality developers.

The flurry of negative headlines has continued well into 2022. Chinese equities have underperformed for the most part in the first quarter of the year due to several domestic and external events hitting the market simultaneously. Key factors contributing to this have been a combination of macro / policy headwinds including further regulatory reforms in key sectors, rising geopolitical tensions with the US, re-escalation of American Depository Receipts (ADR) delisting risks, surging Covid-19 cases and China’s rigid ‘zero Covid’ response plan, and more recently the Russia-Ukraine conflict which presents a real threat to global growth.

Navigating the tides…

For investment managers with significant exposure to China, the period was challenging to say the least. The table below looks at performance and portfolio allocation to China/Hong Kong for a manager peer group of 31 products across both Emerging Markets / Regional Asia and Global Equity sectors (26 and 5 respectively) between the months of October 2020 to March 2022. During the 18-month period, the peer group delivered an average cumulative return of -0.2% (median 0.3%). On a quarter end basis between September 2020 to March 2022, the region’s representation in the benchmark Indices declined meaningfully, from 46% to 42% in MSCI Asia ex Japan, from 42% to 30% in MSCI Emerging Markets, and from 6% to 4% in the MSCI AC World Indices.

In terms of performance, on a subsector basis, global large cap managers with a significant exposure to China (>10% on average) within the peer group produced the weakest outcomes; an average cumulative return of -6.2%. Regional Asia and Global Emerging Markets managers within the peer group generated an average cumulative return of -1.1% and 2.6% respectively. Relative underperformance was tilted towards managers with higher exposure to offshore listed companies in Hong Kong and US listed ADRs which fell indiscriminately during this period. By contrast, managers who held onshore China A shares delivered stronger returns on the back of many sectors doing well. Within the Regional Asia cohort, managers with exposures to large cap growth names and sectors most severely impacted by the regulations faced headwinds while managers with a greater skew towards small and mid-caps, especially those linked to the green economy and the domestication of supply chains, benefitted during this time. And finally, performance fortunes tilted towards valuation sensitive Global Emerging Markets managers who either drastically rebalanced away from consumer and technology sectors at the start of the year or were already underweight these sectors.

Nearly all products within the peer group saw a reduction in their absolute portfolio allocation to China/Hong Kong to varying degrees depending on the performance of underlying holdings and their relative investment outlook. The exceptions to this were the Lazard Global Emerging Markets and FSSA Global Emerging Markets Focus funds where the ending allocation remained fairly consistent with that at the start of the period and the Pendal Asian Share Fund which saw an increase in its allocation. Nevertheless, all three products remained underweight relative to their respective Indices during this time.

On an aggregate basis, Global Equity managers with significant exposures to China demonstrated the largest adjustment to their absolute portfolio allocation to the region, followed by their Global Emerging Markets counterparts. The Global Equity peer group maintained an average quarterly weight of 17% relative to the 5% weight in the MSCI AC World Index. However, notably towards the end of March 2022, large cap quality / GARP and quality / growth managers such as Magellan and DSM capital fully divested their portfolio holdings on account of growing political and regulatory uncertainties.

Global Emerging Markets peers maintained a mean portfolio holding of 28% relative to 36% in the Index. The biggest change in ending allocation was in GQG Partners Emerging Markets Equity and Legg Mason Martin Currie Emerging Markets funds where absolute holdings to China/Hong Kong declined from 43% to 15% and 37% to 26% respectively. During this period, the group had only a small subset of managers that remained overweight relative to the Index (between 1 and 4 at any point in time). This included Vanguard Active Emerging Markets Equity and Abrdn Standard Emerging Markets Equity funds which held a 7% and 4% relative overweight to the Index at the end of March 2022 respectively. This was backed by a positive view on high quality growth names in the region and/or the prospect of a counter cyclical recovery. The group also included the Warakirri Global Emerging Markets Fund which held a 0% weight to China and a 10-11% weight to Hong Kong (primarily a global industrials exports business, Techtronic Industries) during this time.

The Regional Asia cohort maintained a mean exposure of 45% relative to 47% in the MSCI AC Asia ex Japan Index. The biggest change in allocation was in Cooper Investors Asian Equities and Mirae Asset Asia Great Consumer Equity funds, where holdings declined from 62% to 34% and 61% to 46% respectively. Several managers in this group maintained an overweight relative to the Index during the period, ranging between 5 to 9 managers at any point in time (7 as of March 2022). This included GARP style Cooper Investors and Mirae Asset funds, value style Premium Asia and core / style neutral Schroders Asia Pacific and Fidelity Asia funds which were c. 13-16% overweight at the start of October 2020. Of these, Cooper Investors experienced the largest decline, ending the period at a -8% relative underweight, while the remaining maintained their overweight positions to varying degrees despite a reduction in absolute allocations.

The following table lists stocks that saw the largest change in their representation across the peer group’s portfolios on a quarter end basis between October 2020 to March 2022. Large cap technology names such as Alibaba and Tencent that had previously benefitted from nearly a decade of tailwinds from the consumption growth thematic, both from both global and local investors, saw a sharp decline in their portfolio representation during this time. Insurance giants AIA group and Ping An were next in line as investors wary of the growing property sector woes sold the names frantically. Also struggling were technology stock JD.Com and delivery giant Meituan who faced ongoing anti-monopoly and competitive threats. Other notable mentions included exits in the ill-fated New oriental education which succumbed to the regulatory pressures and CNOOC which was placed on an economic blacklist by the US.

Stocks that have seen increasing representation in manager portfolios include names directly benefitting from a transition to a green economy, expanding domestic consumption and those linked to the broader strategic aims of the CCP such increasing self-reliance in semi-conductor manufacturing. Notably, given currently depressed valuations and forecasts of better medium to long term returns, there has also been a renewed interest in names like Alibaba and Meituan after their tremendous fall from glory.

Smoother sails ahead?

Having battled through monumental challenges over the last several months, investors have rightly been concerned about the future of the Chinese investment landscape. Risks of ongoing covid induced lockdowns, slowing growth, further regulatory interventions, and escalating geopolitical political tensions have been at the forefront of investment discussions. Given this backdrop, the CCP’s ‘Two Sessions’ meeting last month in March has provided investors with valuable insights into the government’s plan to promote stable growth in the region. Key priorities for 2022 include a GDP growth target of 5.5% with a CPI target of around 3%. This growth target is at the higher end of the market expectations range and emphasizes the government’s pro-growth policy stance. It also highlights the significance of 2022 as a politically important year for president Xi Jinping who is poised to extend his term as party chief for a precedent-breaking third time during the CCP national congress in the latter half of this year. In saying that, Lonsec considers these short-term targets to be ambitious and critically dependent on key aspects such as easing of lockdown restrictions and a more relaxed Covid approach.

Longer term, in Lonsec’s view, the regulatory storm appears to have subsided. In March 2022, Vice Premier Liu He addressed key market concerns and called for order and transparency in dealings with big tech firms. Alibaba’s share price subsequently rebounded by 65% showing the significance of this speech. Policymakers have demonstrated an urgency to reverse the liquidity crunch currently faced by quality developers and restore consumer confidence in the property sector. Regulators have also been working with the US SEC to resolve the data requirements for Chinese companies to remain listed in the US. Finally, the government has moved to provide monetary and fiscal stimulus at a time when the rest of the world is struggling with rampant inflation which has led to an increased risk of stagflation. On the back of these announcements in April 2022, Chinese equities generated 1.4% (as measured by the MSCI China NR Index AUD) recouping some of the losses experienced during the earlier month.

Valuations in China are currently attractive with many companies trading at historically low multiples and several managers in the peer group remain optimistic on future investment prospects. As of the end of March 2022, managers in the peer group held a considerable allocation to the region (29% on average). In the months to come Lonsec expects markets risks to abate further, albeit volatility and risk premiums may remain elevated for some time. Also given the recency of regulatory developments, some parts of the market such as the internet, education, healthcare may see a lower return profile over the medium term. However, high-quality companies in China with new growth drivers such as the green economy, improved mental and physical health of the nation, and inward-focused technology replacement programmes, for example in semi-conductors are expected to grow rapidly.

Note – an abridged version of this article was originally published in The Australian newspaper on Friday, 27 May 2022. 

IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document.
Disclosure as at the date of publication: Lonsec receives fees from fund managers or product issuers for researching their financial product(s) using comprehensive and objective criteria. Lonsec receives subscriptions for providing research content to subscribers including fund managers and product issuers. Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other advice. Lonsec’s fees are not linked to the product rating outcome or the inclusion of products in model portfolios, or in approved product lists. Lonsec and its representatives, Authorised Representatives and their respective associates may have positions in the financial product(s) mentioned in this document, which may change during the life of this document, but Lonsec considers such holdings not to be sufficiently material to compromise any recommendation or advice.
Warnings: Past performance is not a reliable indicator of future performance. The information contained in this document is obtained from various sources deemed to be reliable. It is not guaranteed as accurate or complete and should not be relied upon as such. Opinions expressed are subject to change. This document is but one tool to help make investment decisions. The changing character of markets requires constant analysis and may result in changes. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).
Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Where Lonsec’s research process relies upon the participation of the fund manager(s) or product issuer(s) and they are no longer an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s).
Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.
Copyright © 2022 Lonsec Research Pty Ltd (ABN 11 151 658 561, AFSL No. 421445) (Lonsec). This document is subject to copyright of Lonsec. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this document may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of Lonsec.
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Originally published in The Australian, 7 May 2022

This article presents the views of Alan Dupont and do not necessarily reflect those of Lonsec.

The ripple effects of the Russo-Ukrainian war are spreading and intensifying. Deglobalisation will jeopardise the prosperity and welfare of millions.

The ripple effects of the Russo-Ukrainian war are spreading and intensifying. Their impact is being felt in almost every corner of the globe, revealing an international system under duress.

The US-led rules-based order has survived and prospered for 77 years through numerous regional conflicts, terrorist outrages and economic shocks. But this time it’s different. Although not the sole cause, the Ukraine conflict is driving a once-in-a-century redesign of the world’s economic and geopolitical plumbing.

Like a once-proud liner battered by countless storms, the old order is in danger of listing, beset by numerous cascading external crises. The threat of nuclear war has increased and the world is rearming as security concerns grow. Food and energy spikes are jeopardising economic recovery, fuelling inflation and shaking up global supply chains already disrupted by Covid-19 and the  accelerating decoupling of the US and Chinese economies. Climate change is complicating energy choices. Trade and financial power are being weaponised. Protectionist sentiment is on the rise. All this is morphing into a system-altering super-crisis. There will be no return to normal service.

The emerging world order will be messier, less stable and more contested than the last, with neither autocratic nor democratic states in charge. The world is again beginning to divide into competing economic and geopolitical blocs, one aligned with the US, another with China, and a European grouping that will be primarily, but not wholly, in the US camp. A fourth group of developing countries may try to maintain their independence from the dominant blocs in a futile attempt to reenergise the moribund non-aligned movement. Non-alignment won’t be a viable option if larger nations continue to flex their muscles.

But the most far-reaching consequence will be the end of globalisation as we have known it. The Russo-Ukrainian war has set in motion deglobalisation forces “that could have profound and unpredictable effects”, OECD chief economist Laurence Boone says. Harvard political economist Dani Rodrik agrees. The war has “probably put a nail in the coffin of hyperglobalisation”, he says.

Peterson Institute for International Economics president Adam Posen writes in US policy journal Foreign Affairs that globalisation has been steadily corroding since its high point at the turn of the century. The reasons? Populists and nationalists “have erected barriers to free trade, investment, immigration and the spread of ideas”. China’s challenge to “the rules-based international economic system and to longstanding security arrangements in Asia has encouraged the West to erect barriers to Chinese economic integration”. Posen says the Russian invasion of Ukraine and resulting sanctions “will now make this corrosion even worse”.

So do John Micklethwait and Adrian Wooldridge in a penetrating analysis for Bloomberg News of the consequences of globalisation’s failure. They write that Chinese President Xi Jinping has spent much of his rule building a Sino-centric economic order on the back of his trillion-dollar Belt and Road Initiative that spans half the globe. The invasion will harden Xi’s determination to reduce China’s dependence on the West, fortified by the “wolf pack” of young Chinese nationalists around him. The breadth and speed of Western sanctions against Russia “is another powerful argument for self-sufficiency”.

But there is a deeper reason: the rise of geoeconomics. First coined in 1990 by American strategist Edward Luttwak to describe the willingness of states to use economic and financial power for geopolitical purposes, geoeconomics has become a preferred tool of statecraft. A recent Deutsche Bank report concludes that as great power competition becomes more pronounced, “geoeconomics is likely to be the tool of first resort in addressing international conflicts”.

The use of economic warfare to achieve geopolitical ends is not new. Trade blockades were a feature of the Napoleonic Wars. Autocratic German regimes weaponised trade policy in the first half of the 20th century to achieve global influence. Pre-World War II Germany was a “power trader”, manipulating trade for strategic and commercial advantage. In more recent times, economic statecraft has become an integral part of a distinctive Chinese approach to foreign policy in which economic and trade coercion is used to cement China’s place as a leading global power. During the past decade more than 27 countries, including Australia, have been on the receiving end of such coercion.

Much to the surprise and chagrin of China and Russia, the US has taken geoeconomics to another level using its economic and financial clout to devastating effect in support of Ukraine. About $US300bn of Russia’s $US640bn ($899bn) in gold and foreign exchange reserves have been frozen.

Once considered the “nuclear option”, the US and its allies have cut off Russia from the SWIFT international payment system and the central institutions of global finance, including the International Monetary Fund and all foreign banks. Russia also has been slapped with the most comprehensive sanctions levied against a significant economy. Unlike earlier sanctions against Iran, Venezuela and North Korea, they are being used against a major exporter of food and energy. Only the US has the financial power to make these sanctions work. But they also require an unprecedented degree of co-ordination among Western allies. “It is the alliance, not the finance, that has mattered,” says Posen. Freezing the Russian Central Bank’s reserves works only if Europe is on board.

If China invaded Taiwan, could the US opt for a hard decoupling and prevent China from accessing the 60 per cent of its $US3 trillion foreign reserves held in US dollars? This might be a bridge too far because of the reciprocal costs China could impose and the collateral damage to the US and global economies. A report last year by the US Chamber of Commerce assessed that a soft decoupling would cost the country at least $US500bn of lost gross domestic product, equating to a 2.5 per cent drop in the US economy.

Cornell University academic Nicholas Mulder, author of The Economic Weapon: The Rise of Sanctions as a Tool of Modern War, estimates a hard decoupling could collapse US GDP by 5 per cent, about $US1 trillion – a bigger shock than Covid in 2020.

Still, the speed and severity of Western sanctions stunned Chinese officials, drawing criticism. Vice Foreign Minister Le Yucheng said “globalisation should not be weaponised”, seemingly oblivious to the arbitrary economic and financial punishment his own country has meted out to other nations across the past decade. “We are shocked,” economist and former adviser to the People’s Bank of China Yu Yongding told Nikkei Asia. “We never expected the US would freeze a country’s foreign currency reserves one day. And this action has fundamentally undermined national credibility in the international monetary system. Now the question is, if the US stops playing by the rules, what can China do to guarantee the safety of its foreign assets?”

The short answer is that Beijing’s options are limited. Despite its financial heft, the yuan is not fully convertible like the US dollar or euro and accounts for only 2 per cent of global payments. Beijing could mitigate the risk by persuading BRI members to use the yuan instead of the dollar, opening the door for others to follow suit. Saudi Arabia is already considering oil sales to China that would be transacted in yuan. And Russian and Chinese officials are working to connect their countries’ financial messaging systems to circumvent the Western-controlled SWIFT. These measures aren’t likely to dethrone the US dollar in the short term, although that won’t stop China and fellow autocrats from trying.

The conclusion of financial analyst Cissy Zhou is that the global financial landscape is set to become more volatile. Sanctioned countries may choose to side with their own bloc for trading and investment. Russia has demanded that Poland and Bulgaria pay for its gas in roubles, not dollars, and has called on its fellow BRICS emerging economies (Brazil, India, China and South Africa) to extend the use of national currencies for international payments to dilute the dollar’s power. If the West continues to impose financial sanctions on the non-democratic world a dualtrack system in global finance could well emerge.

None of this is comforting. Sanctions and embargoes may be preferable to war, but the increased use of geoeconomics is bad news for globalisation. It will discourage economic integration, free trade and technological innovation, leading to lower growth, trade barriers, protectionism and a shrinking of the global economic commons. “What we’re headed toward is a more divided world economically that will mirror what is clearly a more divided world politically,” Council on Foreign Relations senior fellow Edward Alden says. “I don’t think economic integration survives a period of political disintegration.”

Despite recent bad press and widespread belief that globalisation has benefited elites at the expense of the less fortunate, economic liberalism has lifted more than a billion people out of poverty and enriched many lives. Access to goods and services, international travel, instant communications and advances in almost every field of human endeavour are some obvious benefits. World trade in manufactured goods doubled in the 1990s and doubled again in the 2000s.

A geopolitically and economically divided world could ignite another world war just as the end of the first age of globalisation culminated in World War I. Beggar-thy-neighbour tariffs and power trading more than halved international trade between 1928 and 1933, leading to the Depression and World War II. Only after 1945 did economic integration resume its advance – and then only in the Western half of the map.

“What most of us today think of as globalisation only began in the 1980s, with the arrival of Thatcherism and Reaganism, the fall of the Berlin Wall, the reintegration of China into the world economy and, in 1992, the creation of the European single market,” Micklethwait and Wooldridge write.

A reversal of globalisation will not sweep away the world we know. But it will slow progress, jeopardising the prosperity and welfare of millions of people in the developed and developing worlds. Deglobalisation will hurt Russia and curtail China’s power. Their quest to insulate themselves from sanctions by turning inward will sap the dynamism of their economies and reverse decades of progress. It won’t be good for the West either, particularly trade-dependent states such as Australia. The Western order assumes free trade and greater economic interdependence lessens the risk of war. This belief drove the Western victors of World War II to create an order that would unite victors and vanquished in a shared economic and political future.

As the second age of globalisation begins to buckle, the challenge for US President Joe Biden is to build a constituency for a new world order that preserves globalisation’s enriching features, creates wealth, bolsters the alliance, and exposes the excesses and failings of the authoritarian alternative. As an ally and significant middle power, Australia must take the lead in urging the US and like-minded countries to resist the false lure of protectionism and the fragmentation of the world into competing blocs. Avoiding this dystopian future will require a fresh narrative and strategy.

Russian President Vladimir Putin’s no-limits barbarism has had the unintended consequence of reuniting polarised democracies. This new sense of unity, Micklethwait and Wooldridge write, “is no longer confined to the metropolitan elite. One of the great problems with modern liberalism of the past few decades has been its lack of a gripping narrative and a compelling cast of heroes and villains. Globalists have talked a bloodless language of ‘comparative advantage’ and ‘nontariff barriers’, while populists have talked about sneering elites and hidden conspiracies. Now Putin has inadvertently reversed all that. Freedom is the creed of heroes such as (Ukrainian President Volodymyr) Zelensky; anti-liberalism is the creed of monsters who drop bombs on children.”

But a narrative without a strategy is like a car without an engine. The strategy should have two main purposes: hardening the resolve and ability of the Western alliance to withstand further adventurism from Putin and his authoritarian soulmates; and deepening the economic integration of like-minded countries through an inclusive reglobalisation. This should leave no one behind and the door open to autocracies. But only if they are prepared to respect the rules of an international order from which they have gained enormously.

Although Biden has exceeded expectations in rebuilding the alliance and coaxing Europeans to take more responsibility for their own security, he has failed to bind economically America’s European and Asian allies with cross-regional trade deals. A central aim of our foreign and trade policy should be to persuade Biden to advocate for free trade by committing his country to high-standard free trade deals that offer tangible benefits to vacillating non-democracies as well as the developed West. Joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership linked to a redesigned Transatlantic Trade and Investment Partnership would be a good start.

As Micklethwait and Wooldridge observe, the US “won the last Cold War peacefully because it united the free world behind it. This is the way to win the next one peacefully as well. Put together the free world’s economic potential – the EU, North America, Latin America’s biggest economies and the democracies of Asia – and it can do more than see off the autocracies; it can pull them towards freedom.”

There is no more important task for the next government than persuading the Biden administration to advocate for an inclusive reglobalisation. Re-designing economic liberalism to make it more sustainable, egalitarian and interconnected is the best way of reversing the worrying descent into war, conflict and division.

Alan Dupont is chief executive of geopolitical risk consultancy The Cognoscenti Group and a Lowy Institute nonresident fellow.

The content, presentations and discussion topics covered during this event are intended for licensed financial advisers and institutional clients only and are not intended for use by retail clients. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented.

Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, these presentations or any loss or damage suffered by the attendee or any other person as a consequence of relying upon the information presented.

Lonsec advises that all content presented at this event by any Symposium partner (not part of the Lonsec group of companies) is 3rd party content and forms representations and opinions of those 3rd parties alone. The contents of the presentations at this event are not in any way endorsed by Lonsec.

Fixed Income is added to a broad portfolio of assets for several reasons. They include:

  • Return: Frequent income from the cash flows of the coupon or interest payments to stabilise the risk and return of your client’s portfolio.
  • Defensive: Capital Preservation. The relatively steady return of capital of fixed-income products (unless there is a credit event default with particular debt security) can partly offset losses from a decline in share prices.
  • Risk Diversification: Broadening the opportunity set in a multi-asset portfolio to diversify risk.

Although there are many benefits to fixed income products, as with all investments, there are several risks investors should be aware of.

  • Credit and Default Risk: Federal, State, and Semi-Government bonds and securities have the backing of the relevant Government. Whereas, corporate bonds, are backed by the financial viability of the underlying company. Should a company declare bankruptcy, bondholders have a higher claim on company assets than do common shareholders. Bonds with credit ratings below BBB are of lower quality and considered below investment grade or junk bonds
  • Interest Rate Risk: This risk happens in an environment like now whereby market interest rates are rising, and the price paid by the bond falls behind. In this case, the bond would lose value in the secondary bond market if sold or market to market on a daily basis like share prices.
  • Market Risk: The prices of bonds (like shares) can increase and decrease over the life of the bond. If the investor holds the bond until its maturity, the price movements are immaterial since the investor will be paid the par face value (usually the 100 cents in the dollar) of the bond upon maturity. However, if the bondholder sells the bond before its maturity through a broker or financial institution in the secondary market, the investor will receive the current market price at the time of the sale. The selling price could result in a gain or loss on the bond investment depending on the underlying corporation, the coupon interest rate, and the current market interest rate.
  • Inflation Risk: Inflationary risk is also a danger to fixed-income investors. The pace at which prices rise in the economy is called inflation. If inflation increases, it eats into the gains of fixed income securities. For example, if fixed-rate debt security pays a 3% return and inflation rises by 5%, the investor loses out, earning only a -2% return in real terms.

What’s Better for Fixed Income Investors when Interest Rates are Rising?

During a period of rising interest rates (yields) fixed-income investments that pay a fixed rate of interest, such as bonds are not helpful, for two reasons:

Firstly, there is an inverse relationship between a bond’s price and its yield – as interest rates increase, bonds fall in value, so bondholders can face capital losses if the bonds are sold prior to maturity. If not sold prior to maturity and they do not default, you get the original par value back plus interest.

Secondly, the income stream from fixed-rate bonds remains the same until maturity. However, as inflation rises, the purchasing power of the interest payments declines.

Investments that pay a floating rate of return are likely to be better off in an inflationary environment, as the interest rate they pay is adjusted periodically such as every 90 days to reflect market rates. If interest rates rise, the interest paid by the investment should also increase at the next reset date. Investors in these types of securities and products do like interest rate hikes as they have very little interest rate duration (or term) risk.

Inflation is generally regarded as damaging to holders of cash and cash equivalents securities or products since the value of cash usually does not keep pace with the increased price of goods and services.

Strategies Employed by Lonsec’s Managers For Diversifying Fixed Income Portfolios During a Climate of Rising inflation and Interest rates

Typically, you take into consideration the client’s return, risk, time horizon, and liquidity expectations.

Usually, such a portfolio is expected to have a minimum time horizon of three years and provide monthly or quarterly income with a level of liquidity to pay their monthly retirement benefits with minimal impact on their capital.

The anchor for the fixed income portfolio is an active fund manager with a core portfolio of investment-grade coupon-paying bonds that continually mature at par into the next series of bonds. In the current investment climate, these active managers have already taken defensive positions by reducing interest rate risk in the portfolio to below benchmark levels of duration and rotating into higher quality rated bonds.  Yes, the daily mark to market price will fluctuate and I have seen portfolios of fixed-rate bonds in some cases now down 8% over one year to the end of April 2022. However, the fixed income portfolio manager is unlikely to sell them before maturity (assuming fund flows are unchanged), and if the bonds don’t default you will get your par value principle back. As the current bond market correction continues in a typical once-a-decade event now is not the time to crystalize your mark to market paper losses. Continue to focus on your three-year strategy and the fund manager will wait for the opportune time to add interest rate risk to core bond holdings when the economic growth fundamentals start to slow and suggest inflationary pressures have peaked. By then the yields and the carry will be much higher in the portfolio.

The next part of the portfolio is your non-core strategies to enhance your income yield with some additional sub-sector strategies including credit, emerging markets, securitised assets.

Within these sub-sectors, it is important to note the following strategies. During this rate hike period floating-rate (or variable investment) strategies will do better than fixed-rate strategies as short-term rates rise due to the regular monthly or quarterly rate reset higher. Remember Floating Rate Portfolio Managers want short-term interest rates to go higher so they can pass on the higher income to their investors. Since you have a diversified portfolio of strategies this component of your portfolio will do well.

In terms of credit strategies, your typical credit manager will also be already defensively positioned. it is important in terms of capital preservation and market volatility to be higher up the capital structure in senior or senior secured debt rather than unsecured debt or hybrids. If interest rates rise too quickly and too high for an extended period, economic growth slows then the level of defaults is at risk of rising. Better to have a bias towards secured debt whereby you are protected by mortgaged assets. Also, the further up the capital structure you are the equity market beta reduces. What that means is debt lower down the capital structure usually moves in about a 0.7 correlation with equity prices. So, if equity or equities go down say 10% in price, lower down the capital structure debt such as unsecured or hybrids may go down an estimated 7% in price terms (and the reverse happens when share prices are rising and the Fund manager rotates down the capital structure). So, the credit fund manager may have added some floating-rate private secured debt or bank loans (subject to the credit rating) strategies in order to reduce the market volatility and increase capital preservation within your portfolio.

Finally, all the active strategies would be keeping up a higher-than-normal level of liquidity to quickly rotate back into higher-yielding credit and interest rate risk strategies when they deem it to be safe to do so.

Lonsec as part of our portfolio construction investment process monitors and actively manages the exposure to fixed interest assets taking into account the prevailing market conditions and risks. The current environment has been challenging for fixed interest managers; however, the market volatility will present investment opportunities and at some point, the yields offered from fixed income will warrant further investigation.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2022 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Quarterly Update – Q1 2022

Global equities were the Listed portfolios’ main detractor from returns over the quarter. Although the BetaShares NASDAQ 100 and VanEck MSCI International Quality ETFs bounced back in March, both finished the quarter 10% lower, while the defensive sector exposures in Healthcare and Consumer Staples outperformed the broader market benchmark year-to-date. A number of portfolio changes were implemented in March, adjusting our global equities exposures to be better positioned for the current market conditions.

Dan Moradi, Portfolio Manager for Listed Products, provides an update on how the portfolios performed during the quarter and the rationale for the recent positioning changes. Dan explains that the Listed portfolios remain well-diversified and we continue to assess the threats of rising inflation, tightening monetary policy and potential expansion of the Russia/Ukraine conflict as new information comes to hand.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2022 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Quarterly Update – Q1 2022

The first quarter of the year was a particularly challenging period for the Sustainable portfolios as the Russian invasion of Ukraine pushed oil and gas prices higher. The energy sector outperformed the less carbon-intensive sectors such as information technology by 30% during the quarter which proved to be a major headwind for the portfolios. The Sustainable portfolios had very little exposure to fossil fuels so when energy outperforms by such a margin the portfolios tend to lag the broader market. Consequently, the portfolios underperformed the peer group benchmark for the quarter despite a late quarter rally.

Notwithstanding the recent volatility in markets, the portfolios have had a strong year delivering top-quartile returns and 2% above the peer group average over the 12 months to 31 March 2022.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2022 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Quarterly Update – Q1 2022

From a portfolio perspective, geopolitical risks, such as the current Russia/Ukraine conflict, are typically hard to position for. What we tend to see is that the market tends to respond sharply and then recover quite quickly thereafter. And that appears to be the case this time around.  The Australian equity market has advanced over the quarter and has now more than recovered the initial losses suffered upon the Russian invasion of Ukraine.

Whilst it may be difficult to prepare for the event itself, we can position our portfolios for the likely consequences of these events, in this case the risk of higher inflation and higher volatility. Deanne Baker explains why our Multi-Asset portfolios have been well-positioned for these risks.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2022 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Quarterly Update – Q1 2022

It’s been a volatile quarter for equity and bond markets, with existing inflationary fears further exacerbated by the Russian invasion of the Ukraine. While Russia is small in terms of its impact on capital markets, it is a big exporter of commodities, including oil, gas and agriculture as well as fertilisers. It therefore has a meaningful impact on trade and the global economy itself which has impacted investor sentiment more broadly. The result has been further pressure on already stretched supply chains, skyrocketing commodity prices and further inflationary pressures which have added to existing market stresses.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2022 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

In this video, Lukasz de Pourbaix, Executive Director and CIO of Lonsec Investment Solutions provides an update on our macroeconomic views following Lonsec’s quarterly Asset Allocation Investment Committee meeting. A key topic of discussion was inflation. The rise we’ve seen over the recent years has now been amplified by the current situation in Russia and Ukraine and the conflict that we’re seeing. We’re also seeing the increasing possibility of interest rates going up domestically and the impact on asset valuations. Lukasz explains what this means from a portfolio perspective and positioning.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2022 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.