Taking a cautious position entering into 2020

Taking a cautious position entering into 2020

Taking a cautious position entering into 2020 150 150 Piers Bolger

We’ve finally come to the end of 2019 and it’s been a really interesting back end to the year. Through August and September, the financial markets were looking somewhat challenged, and from our perspective, the growth outlook was continuing to trend lower. Then through the latter stages of September, through October and November, we saw some reasonable economic data. That provided a flip for financial markets resulting in some really strong investment performance heading to the back end of the year. Equally, the potential trade war between the US and China looked like it was coming to an end with indications for the first stage of a trade deal to be signed. However, now we can clearly see that the trade deal won’t happen this side of Christmas and it’s most likely that we won’t see something concrete until the middle part of next year. From our perspective, that’s going to have a big impact on financial markets heading into 2020.

From a positioning standpoint, that means we’re going to continue to maintain a relatively cautious position in the way we think about our asset allocation. We still fundamentally believe that equities are a better place to be relative to fixed income as an asset class (on valuation grounds). There is still value in equities, although the moderating global growth outlook due to clear concerns about the trade situation between the US and China is likely to continue to impact corporate activity heading into 2020.

The core for us when we think about 2020 and the performance of asset classes, is the need to maintain a broad based diversified investment strategy. Over 2019, equities have done phenomenally well, fixed income has also done very well along with property and infrastructure. However, we don’t envisage the same level of investment returns in 2020, so from our perspective, it’s about packaging all of that into our portfolio configurations to deliver the right outcome for our clients. By and large, we believe not having a bias to any one asset class through the course of 2019 has really delivered solid and consistent investment outcomes.

There will continue to be challenges for us in 2020. As noted, hopefully, we’ll start to see some resolutions on a number of fronts but we’ve still got Brexit coming through and the US presidential election. In Australia, potentially we may see the RBA continue to cut cash rates with the potential (crazy as it seems) the implementation of some level of QE should the growth outlook not come through as predicted. As far as we’re concerned, financial markets have got a lot to digest and that has a big impact in the way we’re positioning our portfolios and delivering outcomes for our clients. So it’s going to be a really interesting 2020.

As always, if you have any concerns about your investment strategy or your portfolios, please ask your financial advisor. In the meantime, I hope you  enjoy your break and I look forward to giving you more insights in 2020.

Piers Bolger is Chief Investment Officer at Viridian Advisory

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