Piers Bolger
2024 Review
Over the past year, financial markets have performed well across various asset classes, including equities, real estate (REITs), and bonds. Despite some ups and downs, returns were consistent throughout the year. This strong performance was driven by falling inflation, especially in the U.S., where interest rates have started to decrease. This trend is expected to continue into 2025, boosting most asset classes, although current valuations are getting high.
Key trends in 2025
- Focus remains on growth, with the portfolio favouring equities and reallocating more into real estate.
- Within bonds, credit markets are preferred over government bonds due to expectations of shifting interest rate policies.
- Growth-oriented alternative investments will continue to be a priority, while defensive strategies are scaled back.
- Emerging markets are underweight due to weak growth in China, deflation risks, and a strong U.S. dollar; however, recovery signs in China will be closely monitored in 2025.
- Geopolitical and global economic factors influencing strategy:
- Europe faces challenges from political and economic issues.
- Tensions in the Middle East and between the U.S. and China add uncertainty.
- Falling interest rates should support growth investments, though unexpectedly high rates could pressure valuations.
- U.S. market outlook is key, with potential policy changes favouring smaller companies.
- A recovery in Chinese growth could support emerging markets, but significant hurdles remain.
- The Federal Reserve’s leadership change in 2026 may impact sentiment.
Cautious on banks
- Valuations are high and earnings are declining.
- Historically, banks underperform after reaching such peaks.
- The portfolio maintains an underweight position in the banks.
Positive outlook for healthcare
- Companies like CSL, ResMed, and Sonic Healthcare are set to benefit from growing demand for pathology, blood plasma, and medical devices.
- These companies are trading at attractive prices and have strong return potential.
Focus on logistics
- Global trade is becoming more complex due to changes in tariffs and sanctions.
- Companies like Wise Tech, Brambles, and Qube Logistics are well-positioned to adapt and continue growing.
Improving transaction environment for private assets
- Major deals in infrastructure sectors like airports and data centres.
- Notable transactions include Blackstone’s purchase of AirTrunk and KKR’s stake in Queensland Airports.
- These deals signal growing confidence in infrastructure, which had been stagnant post COVID-19
Declining interest rates
- While Australia hasn’t seen large rate cuts yet, the U.S. Federal Reserve is easing monetary policy.
- Falling interest rates are expected to benefit private equity.
- This could lead to more transactions, higher profits, and favourable valuations, supporting growth in private markets.
Overall, the investment outlook for 2025 is positive but cautious. Lower interest rates and strong equity dynamics present opportunities, but risks like geopolitical tensions and uneven global growth require careful navigation. A flexible, growth-focused approach will be essential to manage challenges and seize opportunities.
By Piers Bolger, CIO
