Financial markets continued to rally in April with both equities and fixed income assets moving higher.
Coming off the back of a difficult month in February, fixed income markets continued to improve with yield again remaining relatively flat over the month, resulting in both domestic and global markets generating a positive return. This saw the Multi Sector portfolios once again delivering a solid investment outcome over the month.
Elsewhere, we are starting to see some rises of inflationary expectations push through the system. An example of this has been timber prices, which have risen sharply over the past 12 months on the back of a stronger housing market. And when we consider some of the challenges around migration, employment growth and demand within other sectors of the market, we do expect that inflationary expectations will start to move up over the next three to six months. Nevertheless, from our perspective, we are not envisaging that inflation is going to move significantly above central bank targets.
There were a couple of key drivers of market performance throughout April. Commodity markets continued to rise, with Bloomberg Commodity Index up over 8% in April alone. We are starting to see a real demand for industrial and cyclical base metals, and accordingly we’ve been maintaining (as well as increasing) our positions in copper, iron ore and nickel.
In terms of valuations, we still believe that the Australian market does not look overstretched. However, within our fair value matrix, global equity markets are looking as though they’re trading on a slightly higher valuations, but we think that there are still some good opportunities in global equities, particularly in Europe.
As mentioned previously, we continue to balance our equity exposure via an allocation to growth alternatives. This is to provide a longer duration framework and create a dampening impact on that day-to-day volatility associated with listed equity markets.
As the cyclical recovery is now coming through, we are looking to capture this across both our multi asset as well as direct equity portfolios. The only negative we see in the short term is that if inflationary expectations speed up at a quicker rate than what markets anticipate, this may require some changes to (central bank) interest rate policy which has the potential to flow into equity markets. However, given where we see current inflationary expectations we do not see this impacting our strategy in the near term as we. So overall, April was a really strong month for financial markets, which continues a recent trend that is also manifesting in the early part of May.
As always, if you have any queries about any of the portfolio’s, please feel free to reach out to anyone in the team.