From Jonathan Bayes, Chief Investment Officer, Partners Wealth Group.
With the holiday weekend approaching, I’ll keep this week’s note nice and sharp.
The local market bounced a little, but is still left underperforming key indices in the U.S, Asia and even Europe.
Emerging markets in Asia and Latin America are setting the world on fire year-to-date, spurred on by synchronous global growth and by continued USD weakness.
It’s the perfect storm for outperformance of these markets given the vast bulk of these countries are USD-linked and run major export industries to the U.S and other developed countries, hence they benefit from both the volume uplift associated with stronger demand, and the currency competitiveness afforded them by USD-weakness.
The MSCI Emerging Market index year-to-date in 2018 is +9% and well-ahead of the +3-6% gain across most developed indices, and Australia’s -0.5% decline.
PWG 2017 performance figures finalised
I promised you in recent weeks we would highlight some performance figures on our recommended model portfolios for 2017, and this week I have them to hand.
Despite the AUD strength last year, an outcome we certainly didn’t anticipate, our models have pleasingly outperformed both the corresponding absolute cash plus targets by a wide margin. The models also generally outperformed the Morningstar benchmarks, with the exception of a slight 0.41% underperformance in our High Growth model due to our more defensive stance in that risk band.
Our decision to overweight International Equities paid off as it was the best performing asset class vs Australian Equities and Fixed Income.
International Equities was also the asset class where we generated strong outperformance, achieving a 16.5% return versus the benchmark MSCI World (AUD) Total Return of 13.3% for a 2.6% outperformance.
Despite spending most of the year with cash levels over 10% in our Australian Equity portfolio, our portfolios managed to outperform the ASX 200 Total Return’s 11.8% by 1.2% as we achieved a 13% return for the year.
Our Diversified Fixed Income portfolio also outperformed with a 5.5% return compared to both the Bloomberg Ausbond Bank Bill Index return of 1.7% and the Bloomberg Ausbond Composite Index return of 3.7%.
The week just gone was dominated by the ongoing collapse in the US-dollar, and related bounce in the AUD.
The AUD is today trading at a just shy of a 3-year high at 80.80c and the US-dollar basket itself is already at a fresh 3-year low.
The USD-weakness has been driven seemingly by the combined looseness of both its fiscal and monetary policy, and it’s this theme that is further fueling the economic and investment optimism globally right now.
For the time being it seems set to continue.
Next week’s Federal Reserve meeting is unlikely to be the catalyst to spur market concerns of an end to that easiness, but that time is drawing closer given the rampant economic growth, tax stimulus and ever-rising input costs associated with the commodity price jump.
Perhaps the following Fed meeting slated for March 22nd proves to be that point where investment markets begin to look more closely at the path for tighter policy.
Tax Cut agenda unveiled
On a local note, we saw Federal Treasurer Scott Morrison make his first pointed comments in the direction of personal income tax cuts.
I have recently alluded to this as a likely positive theme for Australian investors in 2018, and was pleased to see these headlines hit the tape earlier in the week.
Mark my words, the Trump tax cuts will have a very definite impact on the Australian economy by encouraging Liberal politicians to follow suit in the lead up to next year’s election.
The Liberals will push themselves as the party for tax cuts, setting them at odds with the Labor opposition and their platform for higher taxes and the repeal of negative gearing.
This week’s remarks are the opening salvo in the coming 12-month campaign for re-election.
Reporting Season & Some portfolio moves ahead
Lastly, in the coming few weeks we will see corporate reporting activity pick up.
A fortnight from now we will have each of Commonwealth Bank (CBA), Rio Tinto (RIO, Macquarie (MQG), AGL (AGL), National Australia Bank (NAB) and AMP (AMP) report, before the floodgates open through the remainder of February and March.
I expect it to be an upbeat season.
We expect to have a couple of portfolio changes next week so do keep an eye on your inbox or phone for an update on these recommended changes.
Have a great long weekend all.
Thursday 1230pm values
|S&P / ASX 200||6046||+31||+0.5%|
|Property Trust Index||1357||-7||-0.5%|
Wednesday Closing Values
|U.S. S&P 500||2837||+39||+1.4%|
Key Dates: Australian Companies
|Mon 29th January||Div Ex-Date – Djerriwarrh (DJW)|
|Tue 30th January||
Earnings – Navitas (NVT)
Div Ex-Date – NABHA
|Wed 31st January||
|Thu 1st February||
|Fri 2nd February||Earnings – James Hardie (JHX)|
For more information on the above please contact your Partners Wealth Group advisor directly or on 1800 333 143.