The party is over, top manager cautions

Funds heavyweight Geoff Wilson has warned that the end of the record bull market is near, telling investors to remain cautious.

Fund manager and philanthropist Geoff Wilson. Picture: John Feder.

Funds heavyweight Geoff Wilson has warned that the end of the record bull market is near, telling investors to remain cautious going into the new year.

As the S&P/ASX 200 hit a fresh closing high on Thursday and the All Ordinaries touched an all-time high, the veteran investor said the record run could not go on forever.

“It is the longest bull market in US history and we all know bull markets end,” Mr Wilson told The Australian.

He noted the All Ordinaries Accumulation Index — which assumes reinvested dividends — last year delivered its best annual performance since before the GFC.

That was on top of the benchmark S&P/ASX 200 rounding out the year with a gain of 18.4 per cent, its best year since a 30.9 per cent climb in 2009.

Similarly, Wall Street benchmark, the S&P 500, finished the year up 29 per cent for its best showing since 2013, while the Dow Jones Industrial Average added 22 per cent and the Nasdaq advanced 35 per cent.

“Company valuations have expanded significantly despite little to no earnings growth and we believe we are in the later stages of this bull market,” Mr Wilson said.

“At the moment there has been significant liquidity pumped into the system, and what worries me is when all those global monetary bodies stop expanding.”

Mr Wilson noted that US money supply at the end of last year was growing at an annualised rate of 12 per cent. “That’s why asset prices are doing so well,” he said.

But there are still gains to be had, at least for the first half, with key economies maintaining their easing bias for the moment.

Economists tip the US Federal Reserve to keep rates steady in 2020 after three cuts in 2019, while economists are increasing their bets for a 25 basis point cut by the Reserve Bank as early as next month.

UBS economist George Tharenou said on Thursday the damage wrought by unprecedented bushfires had ratcheted up the chance of a February interest rate.

Mr Tharenou calculates bushfires could sap economic growth by 0.25 percentage points in each of the December and March quarters.

“Overall we think this makes a rate cut from the RBA in February more likely,” he said.

Mr Wilson said he was on alert for any signs of a reversal in ultra-low interest rate policies around the world.

“That said, in the short term we are positive, but also cautious. As a fund manager we have to be very active.”

The cash levels in the Wilson Asset Management Capital fund — his largest with $1.375bn under management — are well under 20 per cent, versus an average of 30 per cent over the past 20 years.

“The core behavioural impact of low interest rates is twofold — investors demonstrate greater demand for yield and an increased appetite for risk,” he said.

“Across major markets the ‘search for yield’ has led to a mispricing of assets and low rates have pushed investors up the risk curve into less liquid securities.

“The combined effect could amplify the impact of any unexpected shock.”

Any reversal in market fortunes could also be undermined by the US presidential race.

“History shows markets perform better in the final year of the presidential cycle, especially when the president has the opportunity to be re-elected, such as is the case with President Trump, as there is more stimulatory activity by governments in that period,” Mr Wilson added.

Mr Wilson’s group of listed funds on Thursday announced donations to its drought and bushfire appeal had topped $600,000, which are to be matched by the fund up to a combined $1m.

The fundraising started well before the summer bushfires on the east coast, when Mr Wilson drove from Toowoomba in Queensland’s west.

“Looking out the window from Toowoomba to the Gold Coast, it looked like a bushfire had gone through but it was just drought. That’s when we knew this was going to be a major problem,” he said.

“We saw the devastation in rural and regional Australia back in November, and we knew things would get worse.”