US elections, daily pandemic updates, and political scandals are dominating the news headlines. In this world of hyper-connectivity and a constant flow of information, investors must be focused on their game plan and learn to tune out the noise of the crowd. As we witnessed during October’s grand final (AFL or NRL depending on your favoured code), discipline is the key to success.
Markets don’t like uncertainty. True to label in the current environment, markets have been range-trading as significant uncertainty surrounds the outcome of the US elections, as well as the size and scope of a US fiscal package, which requires an agreement with Congress. Add to this ongoing concerns over the pandemic, especially in the US and Europe, and the fraught process of reopening, which has seen mixed success globally.
Managing our portfolio through times like these calls for a solid game plan and the patience to see it through. We can’t afford to bank on one particular outcome (a strategy akin to flipping a coin). We must determine which part of our portfolio will provide protection and which part will allow us to capitalise on the upside and take advantage of potential growth.
Lonsec’s game plan is simple. In a low yield world, you need growth. We have retained our exposure to growth assets such as equities, especially as interest rates remain low and markets continue to be supported by liquidity from central banks. However, we are cognisant that there are risks in the market and therefore we have diversified our equity exposure to incorporate a mix of investment styles that can perform well in different market conditions.
We’re also consciously ensuring that we have exposure to some traditional defensive sectors and investment strategies that we expect to hold up better than the market should we experience a correction. Incorporating diversifying assets that can behave differently from equities and bonds is prudent. We have therefore incorporated alternative assets such as gold in some of our portfolios to bolster our defensive positioning.
Periods of uncertainty can provide opportunity as well as risks, and a dynamic approach is essential for managing both. We have invested in parts of the bond market where we identified significant mispricing opportunities, and we continue to have a positive view on emerging market equities, where we believe the additional potential returns warrant the risk.
As investors, we’re not just playing a single match, or even a single season—we’re playing for long-term success. Markets are unpredictable, but having the right strategy that takes into account a range of possible scenarios, including those that might seem unlikely to us today, will assist in generating more consistent outcomes over the long-term. We can’t win every game or every premiership, but we can increase our chances of accumulating some silverware over time.
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 © 2020 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.