LGT Crestone Wealth Management Limited’s Post

Transcript

Hi, I���m Scott Haslem, Chief Investment�� Officer for LGT Crestone. Welcome to our���� Core Offerings for June. In this month���s edition,���� we edge tactically overweight equities to reflect�� our view that, while the sequence of central bank���� easing has changed, an easing cycle is still�� coming into view in the second half of this���� year. This will be led by Europe and the UK,�� with the US and Australia likely to commence���� their moderate easing cycles much later this year.�� Notwithstanding this change, we still view fixed���� income as our preferred asset class for now. Also in this months��� edition, we take the���� opportunity to discuss our recent annual�� investment strategy review, in particular,���� highlighting our new proprietary multi-asset risk�� factor framework which now underpins our in-house���� strategic asset allocation. We also incorporate�� our belief, that the imperative for nations to���� compete geopolitically, address societal�� inequities, and fund the energy transition���� will underpin a higher resting rate for growth,�� inflation, and interest rates going forward.�� Turning to recent macro developments, there�� have been five key global macro shifts which���� support our desire to remain overweight fixed�� income relative to equities. They also support���� our decision this month to add near-term risk�� to portfolios via a modest equity overweight,���� as well as our preference for domestic equities�� (and the closure of our European underweight).�� Firstly, US inflation in April�� resumed its downward glidepath,���� while there are increasing signs that US growth�� is now easing. The US jobs market is also showing���� signs of loosening. We believe this leaves the�� Fed on track for rate cuts later this year.�� Secondly, after consecutive quarters of negative�� growth, the UK and European economies have exited���� recessions in early 2024. Easing inflation,�� and imminent central bank rate cuts - in���� June for Europe and likely August for the UK -�� should support a modest growth recovery ahead.�� Thirdly, early 2024 growth in Japan has�� disappointed, delaying further BoJ tightening, and���� adding downward pressure to global bond yields. Fourthly, China has hit the panic button over���� property, following further weakening during�� April and May. While analysts question���� whether authorities have done enough,�� further support is positive for China���s���� outlook as well as Australia���s resources sector. Finally, the Australian consumer now appears to be���� slowing quickly, while there are increasing signs�� recent labour hoarding is giving way to actual job���� losses. This should help reverse recent inflation�� pressures, paving the way for a rate cut later���� this year. May���s stimulatory budget also suggests�� growth can stabilise through the second half���� of the year, supporting our equity overweight. Turning to our annual Investment Strategy Review,���� we update our framework to incorporate our�� updated secular outlook. There are three key���� drivers. Firstly, we believe we are now in�� a multi-polar world. It���s no longer US-led,���� and embodies a diverse range of global�� actors, including China and Russia.�� Secondly, we also believe policy settings are�� turning more populist, with more state-directed���� industrial policies (like the US���s IRA Act),�� undermining ���comparative advantage��� as the���� cornerstone of world trade. Finally, the�� energy transition is also picking up pace,���� driving capex and employment globally. As noted, we expect this to underpin���� a higher resting rate for growth, inflation,�� and interest rates going forward. This���� also likely fosters more volatility and�� dispersion across economies and markets.�� While our outlook might appear to paint�� a troubling picture for portfolios,���� we believe the astute investor can navigate, and�� even thrive, in this new world. However, this will���� require investors to become more detailed, more�� active, more creative and more constructive as���� they outwork their investment strategy. As part of embedding these four actions���� across our 2024 Investment Strategy Review, we�� have introduced a proprietary multi-asset risk���� factor framework that now underpins our in-house�� capital market assumptions (these are the risk,���� return and correlation assumptions driving�� all our asset and sub-asset class weights).�� This approach gives us powerful tools to better�� understand asset class behaviour and portfolio���� design. Indeed, our annual review has led to�� the following key changes to our long-term���� strategic portfolio weights, discussed in�� greater detail in this month���s publication.�� We are modestly lifting cash allocations from 3%�� to 4%. This change reflects the lower opportunity���� cost for holding slightly higher levels of�� cash given our expectation for rates to be���� elevated relative to the past decade. We are customising fixed income weights���� for different risk profiles. We believe�� investors will benefit from a different���� mix of fixed income allocations within each risk�� profile. For example, more conservative profiles,���� with a larger fixed income allocation, will�� likely benefit from increasing their weight���� to more actively managed absolute return�� or higher yielding credit opportunities.�� We also refresh our equity allocations. Our�� analysis leads us to further lift global���� equities from 55% to 60% within our equity�� bucket. As part of this, we are introducing���� a strategic allocation to Japanese equities. We are also modestly lifting our alternatives���� allocations from 20% to 21% to capture their�� diversifying qualities, their ability to capture���� secular themes and improving liquidity dynamics�� (as discussed in last month���s Core Offerings).�� We believe that these changes to our�� strategic asset allocations, alongside���� the improved analytical tools our proprietary�� multi-asset risk factor framework gives us,���� will allow our clients to best adapt to, and take�� advantage of, the changing investment environment.�� See inside for more details. And for more�� information, talk to your adviser or contact���� us at info@lgtcrestone.com.au. See you next time