From real estate to equities, 10 market experts break down the best investment options ahead
We asked ten market experts where they would allocate assets in the next 12 months – here’s what they said.
Peter Morgan - Private investor, former fund manager
Having started the year in euphoric fashion after being flooded with liquidity for years by central banks and governments, it’s important to note financial markets have corrected from very high levels at the start of the calendar year.
Markets may go lower but no one is going to ring a bell at the bottom. To this end, I’ve started increasing my position in risk assets in recent times, and will continue to do so if markets continue to fall hard throughout the year.
My current positioning is as follows: 25 per cent in Australian Government short to mid maturity bonds, bought recently at yields of 3-3.5 per cent; 25 per cent in overseas shares, mostly actively managed funds; 25 per cent in Australian shares, a mix of local listed and individual companies; 25 per cent in cash, which is dry powder to invest if markets stay volatile and fall away at times.”
Sally Huynh - Adviser at Shadforth
The answer depends on the investor’s goal and investment horizon. If funds will be called back shortly then it is best to stay away from growth assets- shares and properties: Though shares and property produce better long term returns, shorter term their prices may fluctuate significantly. If forced selling during a price downturn that could be a loss.
Under such a scenario it’s best to stay defensive in term deposits/interest yielding accounts.
If the goal is long term then shares and property may be considered. However, before deciding which to purchase, it’s important to understand appropriate tax structures to optimise long term benefits (e.g. family trust, superannuation, partner with lower marginal tax rate etc.). As a starting point, having a clear goal should lead to the right investment decision.
Sue Dahn - Adviser at Pitcher Partners
In the midst of major market shifts such as we are currently experiencing, the best course is very often to wait out all the asset price volatility and simply to do nothing.
Investors who remain slightly below their target exposures to growth assets due to market falls, but who are generating enough income from their asset base, are well advised to fully employ that rarest of resources: patience.
When market recovery comes, their asset allocation will automatically rebalance itself.
“Investors who are still populating a portfolio, however, should take advantage of the current lower price multiples and higher yields from equities and property and the welcome end of ‘return-free-risk’ from bonds and debt instruments, to deploy their capital slowly and carefully over coming months.
There is nothing more certain than that the current investment environment of peak fear will change and when supply chains heal, prices and value will once again begin to converge.”
David Cassidy -Investment strategist at Wilsons
Investors are best placed investing in a well-diversified ”balanced growth” portfolio given the elevated level of macroeconomic uncertainty.
We would recommend allocating around 60 per cent to equities split evenly between domestic and global shares. We would allocate around 20 per cent to fixed interest. This is the most we have been recommending allocating to fixed interest for some time and is based on the higher yields now on offer in fixed interest markets.
Finally, we would allocate close to 20 per cent in alternative assets which includes asset classes such as private debt, private equity, market neutral hedge funds and unlisted infrastructure. The aim of an ‘alternatives’ allocation is to provide increased diversification and an alternative source of return in excess of fixed interest or cash.
Chris Brycki - ETF specialist fund manager at Stockspot
Ensure your portfolio is diversified and stay invested. That means having a mix of shares (international and domestic) as well as gold, bonds and some cash to cover short-term expenses.
The current market volatility has strengthened the case to spread your money across a range of investments and avoid the temptation to chase whatever is ‘hot’.
If you’re well diversified, you can avoid large losses from a single investment. This can make a big difference to your capital (and sanity) when markets fall. Stick to your diversified strategy, stay invested and perhaps top-up if you have the cash reserves. Don’t be tempted to bail out or tweak your portfolio. Over the long-term, the investment markets have always rewarded disciplined investors with diversified portfolios who keep on investing while others are selling.
Damien Klassen - Fund manager at Nucleus Wealth
Long-term government bonds: -The RBA is going too far, too fast. They’re trying to pull in the floods and international inflation by raising rates here, and that’s going to slow the Australian economy faster than what’s priced in. They won’t have to push rates as high as the markets are pricing, and so the longer term bonds are going to fall from current levels.
On those bonds, there’s two benefits that you get out of it. One is that, as inflation comes down, there’s inflation pricing implicit in those bonds. But the bigger and more important factor is that, if rates don’t need to go as high as markets are forecasting, then you’ll see the longer term rates starting to fall. When bond yields fall, the prices of the bonds rise. It’s not like you’re going to double your money in long term bonds, but it’s a relatively safe position at the moment.
Pete Wargent - Property adviser
For the first time in years, there are risk-free returns on offer for investors, which in turn has dampened the appetite for risk assets.
Looking at property in Sydney and Melbourne have borne the brunt of the housing downturn. Investors are likely to target units in the sub $1.5m bracket in anticipation of stamp duty reforms, or venture further afield to Wollongong or the Central Coast.
In the lower price points, investor interest has been focused on detached homes in Adelaide, which is entering chronically tight rental market conditions.
Retail trends have been fickle as consumer activity has shifted online, and the use of office space is undergoing a general transformation, but demand for industrial units and warehousing remains very strong. Medical centres are another great example of commercial property likely to experience huge demand growth as the Australian population grows and ages.
Jun Bei Liu - Fund manager at Tribeca
People should be cautiously moving back into the equity market, particularly for some of those quality structural growth companies like CSL. A lot of those shares have been sold off as people expect higher interest rates and the like, and so they’ve never been cheaper.
They are companies that will continue to grow even with a recession – they’re large, quality companies with many decades of track record to show strong execution, and they have a very strong franchise.
Healthcare is the space to look at. The biggest, CSL, is a standout. At the same time, with resource companies being sold off more recently, you’re also looking at pretty good dividends and buy backs there, especially for major names like BHP. It’s likely China will continue to stimulate the economy and that will continue to support resources, making for strong returns.”
Will Hamilton - Adviser at Hamilton Wealth
I know some commentators are forecasting cash rates in Australia to rise above 4 per cent, but it’s important to step back and look at everything in perspective: The speed or degree of an increase in the cash rate has little bearing on where rates will end up.
The sharemarket falls – to date – to have priced in the probability a recession in the US would be moderate. So, if this were to eventuate, then based on history, I would expect the majority of market falls to have already occurred. There will be a once in a decade buying opportunity for equities in either 4Q 2022 or 1Q 2023.
Meanwhile, bond markets have experienced their worst year since records began, the main Australian Composite Bond Index down more than 15 per cent from peak to trough: I am watching the bond market closely and preparing to add to our portfolios at the appropriate time. This will be through Government bonds rather than corporate bonds.
Damien Hennessy - Asset allocation specialist at Zenith
Exercise caution on risk in the near-term, but there will likely be opportunities to expand on risk in coming months.
Markets have been moving much faster than what we’ve seen for many decades – as we move out of Covid, into inflation and into tight policy – which makes investment and asset allocation very challenging. “It pays to try to understand what’s priced into markets at the moment – how much of a potential recession is already priced in. My view is that a fair bit is already priced in.
Typically, you should use this sort of a sell down as an opportunity to add to your weightings in equities and risk assets. I’m still quite cautious on equities and risk assets, however there is a real possibility that could shift in the next six to 12 months, and it’s at that time that risk assets might start to do fairly well.”
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