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13 May 2024
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As the world shifts away from one of artificially suppressed interest rates and cheap manufacturing, investors will need to carefully consider how companies are positioned to navigate the new higher-cost paradigm.
While capitalism has its downsides, no system allocates resources better, and the result is a complex, adaptive economy. But indexation has amplified the disconnect between valuations and fundamentals, with worrying implications.
The negative stock/bond correlation from 1998 until 2019 was the anomaly, not the positive relationship that began in 2022. In the years ahead, portfolio diversification should come increasingly from security and manager selection.
Global asset owners have historically allocated capital to two distinct equity asset classes: global large cap and/or global small cap. There's a good argument for a small-midcap fund to be part of investor portfolios.
Small and mid cap stocks potentially offer investors an opportunity not seen in decades as valuations are close to two standard deviations 'cheap' relative to larger companies. It's not the only thing in their favour.
In 2023, the focus will shift to the economic cycle. While equities and some of the riskier fixed income markets have challenges, a solid risk-free rate added to a 3-4% equity risk premium is a good through-cycle return.
A collection of interviews with financial markets experts on investing, superannuation, retirement and other topical issues, as published by Firstlinks over 2021 and 2022.
Decelerating inflation should provide a tailwind for high quality bonds but will likely hurt company margins and therefore stock prices. Uncompetitive companies facing elevated capital costs will be most at risk.
Portfolio construction requires actions, not just words, based on expected returns, volatility and correlations. We have not seen sufficient pain to believe we are at the bottom of the equity cycle.
Averages provide the central value in a data series but provide no window into variation. Every market drawdown, financial crisis and recession is different, and market cycles only end when excesses are corrected.
The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.
What does a global investor think of the consequences of war, changing investment opportunities, building portfolios, good and bad stocks and why obstinacy amid short-term trends is a positive attribute?
Australians are generally optimistic about retiring comfortably but their confidence lags retirement savers in other countries. They are also the most unsure about future returns and withdrawal rates in retirement.
REITs come in many forms and the impact of inflation varies by the type of inflation and the REIT subcategory. Some trends, such as the end of 'just in time' and greater power of labour, have a widespread impact.
Negative real yields have unmoored asset prices from fundamentals, but inflation pressures are likely to start pushing real yields higher. Higher real yields should feed into lower risk asset valuations.
The anniversary of the pandemic low point in the S&P500 was 23 March 2021, delivering a staggering one-year return of 77%. If history is a guide, as policy normalises, investors will pivot to 'compounders' not cyclicals.
Efforts to become more sustainable will challenge many companies and perhaps even bankrupt some. Sustainability drives new opportunities but brings risks for others, and companies which cannot adapt will suffer.
Active managers need to know what factors are distorting asset prices. This interview with Ted Maloney, CIO of MFS, explores how much of 10 years of growth has been pulled forward and the impact of Reddit users.
Regardless of how an investor owns an asset, they need to know how a business is sustainable over the long term. By influencing the activities or behaviour of investee companies, returns can be enhanced.
While the recent Pfizer announcement deserves optimism, the global life sciences supply chain is likely to create more sustainable profits than those in the highly-competitive vaccine market.
If he wins, Joe Biden will enter office with a weak mandate relative to expectations due to the underperformance of his party, but the executive branch wields a great deal of power in the regulatory framework.
Everything is rising in value because there is excess capital chasing too few opportunities. Capital should be allocated more responsibly with a focus on the future cash flow from a company.
Many investors believe they have sufficient visibility into numerous unknowns to make the high-conviction call that the recovery will be strong. We don’t, and we're not willing to guess.
After 35 years in fiduciary and leadership roles, the President of MFS Investment Management is clear about the major problem in wealth management: we have not convinced investors to think long term.
Manufacturing is going through an extended ‘Internet of Things’-enabled automation refresh cycle which will change the global industrial market, with profound implications for business models.
Political outcomes are challenging to predict. Instead, we need to focus on the investment implications of a variety of policy outcomes. A long term perspective is where valuation intersects with fundamentals.
A global asset allocator is positioned defensively to preserve the wealth of his clients. He has some strong comments on stocks, the investment industry and avoiding the pressures of short termism.
A global investment strategist looks at why this cycle may be different, and examines the potential invested yield curve for hints from the past.
In some markets, the sheer volume of money flows into both good and bad companies, but when tougher conditions inevitably come, it's the quality earnings that sustain.
In the first of our Summer Series, Guest Editor Pilar Gomez-Bravo, a Director of Fixed Income at MFS, selects her favourite articles from our archive with an emphasis on long-term investing techniques and benefits.
As he prepares for retirement, a Chief Investment Strategist from a major global fund manager summarises what he has learned working through five full business cycles. He says it's time to take risk off the table.
The sizeable increase in the market capitalisation of the technology leaders has inadvertently led to reduced diversification via a reduction to a mid cap exposure in portfolios represented by the Russell 1000.
Many experts are warning that over the past 60 years, the yield curve has inverted in advance of every recession, but will a yield curve inversion have a different result this time?
Despite what the textbooks tell us, a world of more dominant players has not led to higher prices. How does this affect investing?
The long bull market allowed passive investing to prosper, but over a whole cycle, companies with better fundamentals will outperform weak ones. The market is finally showing some dispersion.
This wide-ranging interview with Pilar Gomez-Bravo, Director of Fixed Income at MFS Investment Management, covers the role of active management, the low rate environment, portfolio creation and asset class correlations.
Both retail and institutional investors are demanding fund managers respond to ESG issues. A new generation will insist on better standards and will not accept a compromise in returns.
In a good company, culture drives the businesses strategy. It guides the way employees work together. And ultimately, culture shapes the type of experience a firm delivers to its employees and clients.
Portfolio managers and goalkeepers feel the need to do something, but an awareness of this action bias may help them recognise that inaction can be an optimal strategy.
Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.
If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.
How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.
Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise.
There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.
The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.