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 

The post Infinity Asset Management 2024 Review and 2025 Outlook appeared first on AdviserVoice.

Piers Bolger

As we begin the new year, it’s customary to reflect on the previous year – what went well, what did not work out as expected, what could be better and what will the year ahead bring?  These same reflections often also ring true for financial market participants.

After a difficult 2022, many investors felt that 2023 would bring increased stability across markets with the potential to put many of the challenges of the year behind them; 2023 was going to provide the springboard for improving investment opportunities.  However, as we begin the new year, 2023 was indeed another year of living dangerously.

And while market performance, particularly global markets (led by the ‘Magnificent Seven’ of Microsoft, Meta, Amazon, Nvidia, Apple, Alphabet and Tesla) have shown to be resilient in the face of higher cash rates, rising bond yields, political turmoil, sticky inflation, geopolitical and trade risks and as we write, an increasing military conflict, not all asset classes have fared as well.

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The Australian equity market (S&P/ASX 200 Index) is slightly lower (-0.2%) over 2023, while domestic small caps (S&P/ASX Small Ordinaries Index) and publicly traded REITs (S&P/ASX 200 AREIT Index) are down -6.1% and -5.0% respectively year to date. Even bond markets have failed to deliver a positive return with both Australian and global bond indices (in A$ terms) down around -0.7 to -1.0% over the year, while the A$ has declined by -7.0% (v’s US$).

While these performance returns are ‘better’ than what occurred through 2022 (for example, the Australian bond market was down -9.7% over the year), it has resulted in some investors questioning the value of diversification across portfolios.  Are ‘traditional’ defensive investments still worth consideration? Can growth assets rebound with a global economic backdrop that in part looks fragile and uncertain?   So, as we begin the new year, the question we now ask ourselves, is 2024 going to be nice to investors or will we be faced with another period of market and economic consternation.

While geopolitical risks along with ongoing military conflict will continue to impact financial markets, our key focus and the one that we believe will have the most significant impact will be the outlook for cash rates and by association inflationary expectations and the direction of bond yields.  The moves by central banks over the last 18 months to curb inflationary pressures have resulted in the most substantial uplift in cash rate history across many markets.

However, while inflationary pressures across many developed economies remain above central banks’ target bands, inflation has moderated.  And while it does not mean that cash rates have peaked, it is clear central banks are now closer to finishing with rate tightening than they were at the beginning of 2023.  This is fundamentally positive for multiple asset classes – equites, bonds, property, real assets – in our view, and we believe this will translate into higher, more synchronised investment performance across financial markets through 2024. In Australia, while inflation remains above that of many other developed economies as well as the RBA’s target band, the potential for further rate hikes remains.

However, with the current level of household indebtedness and the lack of flexibility in the economy we do not see Australian cash rates peaking much above 4.50%.  This is in-line with the average cash rate (of 4.3%) since 1989.

Yet, with the likelihood that inflation will remain higher for longer, we do not see cash rates moving lower at all through the 1H24 and potentially not across some economies for the full year.  And while a big jump in the unemployment rate and any major economic slowdown through 2024 may lead to a speedy reversal of the central banks’ policies, this is not our base case.  So, while we believe that 2024 could provide investors with several ‘treats’, we are not so naïve to think it will not be a tricky environment.  Risks continue to abound on multiple levels and with a US election thrown into the mix in November, it will bring its own set of challenges for investors to navigate.

Nevertheless, while the broader global growth outlook is set to moderate further through 2024, history shows that it is not always an impediment for markets to move higher. In addition, given that cash rates have moved higher it does afford increased policy flexibility for central banks should they look to reduce rates at some stage through 2024 and beyond given that cash rates are no longer negative or at multi year lows.

And should inflationary pressures continue to moderate, financial markets will begin to look through the cycle with the expectation that bond yields will retrace from current multi-year highs. In this environment, we see that broad-based investment portfolios can once again deliver sound investment performance with less risk than through previous investment cycles. Financial markets have dealt with much adversity over the last few years, and we look forward to a more constructive outlook for 2024.

By Piers Bolger, Chief Investment Officer

The post What will 2024 bring? appeared first on AdviserVoice.

Piers Bolger

Viridian Advisory, an Australian advisory firm, conducted a poll of its adviser network which covered 41 financial advice practices and the views of over 100 financial advisers. The survey conducted sought to understand the repercussions of global geopolitical events on financial advisers and their clients’ investment decisions and highlighted the unwavering resilience of Australian investors.

The poll reinforced the critical need for augmented support for financial advisers navigating ongoing geopolitical influences. Notably, 73% of advisers agreed additional support is a necessity to effectively communicate and educate clients about the potential implications of ongoing geopolitical tensions.

While economic concerns persist, a notable revelation surfaced: 56% of adviser respondents reported no client inquiries concerning the economic climate. Similarly, financial advisers highlighted that sentiments among clients remained stable, with 55% of advisers expressing unchanged or neutral bearish perspectives, while 41% highlighted their clients exhibited a more pessimistic outlook.

During times of crisis, investors can face heightened stress which can cause knee-jerk reactions that impact their investment strategies.

Amid looming global recession prospects, rising interest rates, and geopolitical conflicts, Australians have turned to financial advisers for personal guidance and reassurance along with wealth creation strategies.

Brett Arnol, General Manager of Viridian Advisory, emphasised that financial advice transcends mere investments; it’s a cornerstone for clients’ overall well-being and financial security.​

“During geopolitical tensions, there’s often a surge in uncertainty triggering potential stock sell-offs. Yet, within our network, our clients remain steadfast,” Arnol observed. “Our clients are oriented toward long-term investments, a stance reinforced by the support our advisors provide. However, amidst this volatile landscape of uncertainty, market fluctuations, and escalating inflation and interest rates, there’s an evident need for additional support.”

“It’s crucial for financial advisers to step in as coaches, guiding clients to maintain focus on their long-term goals and avoid rash decisions prompted by sudden market shocks. Financial advisers have assumed an increasingly pivotal role, extending their support beyond conventional financial planning practices”, said Mr Arnol.

Financial advisers serve as crisis interveners, not only offering guidance on investments but also playing a pivotal role in assuring clients during tumultuous times. Arnol highlighted this broader role, recognising the complexity advisers face as they help clients navigate multifaceted crises, providing support and devising strategies to buffer against future uncertainties.​

Arnol said Viridian Advisory draws heavily on Viridian Financial Group’s in-house investment expertise. Advisers receive the latest market commentary, videos and corresponding strategies to help them explain geo-political trends and issues, as well as local economic trends.

​Cash rates to be key driver of 2024 market outlook​

Piers Bolger, CIO of Viridian Financial Group, highlighted the investment environment in 2024 will be likely dominated by cash rates, “While geopolitical risks along with ongoing military conflict will continue to impact financial markets, our key focus as we head in to 2024 and the one that we believe will have the most significant impact will be the outlook for cash rates and by association inflationary expectations and the direction of bond yields. ​

The moves by central banks over the last 18 months to curb inflationary pressures has resulted in the most substantial uplift in cash rate history across many markets.​

“It is clear central banks are now closer to finishing with rate tightening than they were at the beginning of 2023.  This is fundamentally positive for multiple asset classes – equites, bonds, property, real assets – in our view, and we believe this will translate into higher, more synchronised investment performance across financial markets through 2024”, said Mr Bolger.

Viridian Advisory remains unwavering in its commitment to providing comprehensive support to financial advisers and clients, guiding them through the ever-evolving financial landscape amid this humanitarian crisis.

The post Adviser poll highlights investor resilience amid geo-political challenges: Advisers highlight the importance of increased support to help educate investors appeared first on AdviserVoice.

The key information that advisers will be able to access includes:

• equity research via eQR Securities
• annual capital markets view
• detailed and summarised quarterly capital market updates
• monthly economic/market updates
• periodic thematic papers
• sector papers
• detailed monthly product commentary that supports the Securitor Select List
• model portfolio information and reporting
• approved product lists
• podcasts
• calendar of market events

While the site is targeted to meet the investment and product needs of advisers, selected information from the site can also be provided to clients to assist them with client education and information delivery.

“We are in a dynamic operating environment – advisers need access to timely high-quality research to meet the needs of clients. Investors are closely tuned to market fluctuations and as a result are playing a more active role in their portfolios. Advisers need insightful commentary at their fingertips – this site has been designed to meet the needs of our aligned practices and their clients,” said Matt Englund, head of dealer groups at BT Financial Group.

The site provides access to eQR Securities which combines the strengths of over 200 professionals including economists, strategists, portfolio managers and analysts across BT Financial Group’s internal and external network and strategic research partnerships. eQR research provides access to research on over 200 securities across the S&P/ASX200 index.

Piers Bolger, head of research and strategy at BT Financial Group who has responsibility for delivering this service to Securitor practices said, “The way we provide research material and share insights has evolved since the GFC. Now there is a bigger appetite for in-depth market and product information to assist advisers in their discussions with clients.

Being able to deliver a research service that is easily accessible and provides a constant information flow to advisers, highlights that Securitor continues to build on its value proposition to advisers”, he added.

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