Summer winds down in the Northern Hemisphere 

Market performance in August for the major indices in the US was negative (S&P500 –4.24%, Nasdaq –5.22%), while the ASX constituents had a mixed performance with the ASX200 up 0.61% and the ASX200 REIT Index down –3.43%. Overall, market performance was driven by geopolitics and ongoing inflation uncertainty. 

We are in an information lull between earnings updates as summer winds down in North America and Europe. Rumours can become facts quickly in this environment, and that heightens unease.  Central Banks have scrapped forward guidance, the Chinese National Congress is meeting in mid-October, a US midterm election in early November and large swings in the Russia-Ukraine conflict has uncertainty levels in listed markets high. 

Our Portfolios  

Our portfolios have continued to fair well – we were far too early last year positioning for inflation but the last 6 months in particular has seen strong performance when compared to benchmark index portfolios for the same risk profile.  

Our Low Volatility portfolio was +0.83% for the month aided by our zero weighting in bonds and strong weighting to floating rate notes. As a comparison, the Vanguard Diversified Bond Fund returned –2.83% for the month and the Morningstar Conservative benchmark returned –1.75%.  

Our Mid Term Income portfolio which has a strong diversified value focus returned +0.36% for August against Morningstar Moderate of –1.75% and the Vanguard Balanced Index Fund –1.72%. Again, zero weighting in bonds and our weighting to user pay assets which benefit from inflation have helped our performance.  

Our Long Term portfolio was up +2.39% in August. This portfolio has our highest cash weighting and benefited from some strong single stock performances as well as our cash weighting, which has been maintained at the time of writing.  

The first two weeks of September has provided the data that the Profiteers of Doom (Media and businesses providing Macro research) were craving.  Inflation ran hotter than expected and Central Bankers are tipped to bring rates in Canada, the US, the UK, and Australia closer to 4% instead of 3%. 

Driving that persistent inflation are hot economies, supply chains, and underinvestment in resources.  The Australian unemployment rate is at 3.77%, the lowest in 40yrs and job vacancies are topping out at 300k.  If you walk into a Dan Murphy’s and are over 18yrs old and ask for a job, the store manager is required to interview you on the spot for a position.  A unique solution to a shortage of staff. 

With a resource-based economy here in Australia, and a buffer on jobs (from a very slow restart to migration), our core thesis is still for a soft landing.  As political uncertainty clears in the US and China that can be a catalyst, as will a positive 3rd quarter result from S&P and Nasdaq listed companies. That being said, from a portfolio perspective, we are welcoming a return to more normal market behaviour and pricing of risk rather than the rampant enthusiasm that drove asset prices higher in the last decade.