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20170721 – Portfolio Activity

20170721 – Portfolio Update from Michael Cooper on Vimeo. Despite two positive potential catalysts this week, the Australian share market has maintained the sideways trading pattern that has prevailed since the middle of May. Early this week a much anticipated announcement came when the Australian Prudential Regulation Authority defined what it means for our banks to be ”unquestionably strong”, a phrase taken from the final report of the Financial System Inquiry. The banks have been building their capital for several years and are already quite close to the increased capital ratio set out by APRA, well ahead of the January 2020 deadline. This benign outcome saw the banking sector rally by more than 5% across Wednesday and Thursday’s trading. We also had labour market data released this week and saw a continuation of the strong recent trend in jobs growth, particularly in full time jobs. An uptick in the participation rate meant that the unemployment rate remained steady at 5.6%, though importantly the underemployment rate drifted lower to 8.4%. This is an encouraging sign for the health of the Australian economy, though as we have mentioned before it will be especially welcome to see strength in employment data translate into improvements in wages data. ASSET ALLOCATION & INVESTMENT COMMITTEE With the sideways move described above the forecast returns for Australian Equities have remained relatively steady over the last several months. As a result the committee has affirmed the active overweight to this asset class at our meeting this week. We are however making a subtle adjustment within the constituent investments which will see a reduction in the Financials ETF...

20170707 – Portfolio Activity

The leaders of 20 nations have gathered this week in Hamburg, Germany in what Bloomberg is calling the G19 plus Donald Trump, pointedly referring to ”America’s new unwillingness to cooperate with the world on vital international issues.” There can be no clearer rejection of the Trump administration’s isolationist stance than the preliminary free trade agreement reached between the European Union and Japan. The deal announced this week will eliminate tariffs, expand markets for services and boost regulatory cooperation. It must also be said that it shows the priorities of the EU as Brexit negotiations begin in earnest, and the weak position from which the United Kingdom is required to negotiate their exit from the common market. Reserve Bank Governor Philip Lowe delivered a decidedly neutral statement when announcing the bank’s decision to leave interest rates at 1.5% this week. Whilst the decision was entirely expected, some had anticipated that the bank may signal a subtle shift towards a tightening bias in due course. The absence of that language led to a sharp fall in the Australian dollar as expectations were adjusted. The consensus is still that the next rate move will be upwards, as data continues to confirm that the economy is on a sound footing. This week trade data showed a strong rebound in activity, supporting the view that the Q2 GDP result will do likewise. CORRELATED INVESTMENTS The flexibility to correlate non-model investments within asset classes is a feature of the Individually Managed Account portfolio structure. As an example, often this means we accommodate an investor’s existing shareholding and manage asset allocation and sector exposures around that...

20170630 – Portfolio Activity EOFY

European Central Bank President Mario Draghi gave an important speech this week in which he referenced the continuing economic recovery in Europe. Market participants took a clear signal that the era of extraordinary monetary policy support would not continue indefinitely. This led to some significant moves in bonds and a sharp increase in the Euro exchange rate. Whilst these short-term moves have been quite pronounced, Draghi made clear that ”global uncertainties remain elevated,” and as a result the bank will exercise prudence in adjusting the policy stance whilst ”accompanying the recovery.” Activity in equity markets has also been a little more turbulent than the recent past, however after rallying by nearly 2% mid-week, indications are that the ASX200 will give back some of that gain on Friday and close about flat for the week. With a longer term perspective, and as we close the financial year, the ASX200 index has provided a very solid total return of 15% over the last year. Importantly, the recently beleaguered Financials sector has in fact led the overall market higher over the same period, notching up a total return of nearly 22% since July 2016. ASSET ALLOCATION & INVESTMENT COMMITTEE At our meeting this week the committee affirmed the current active asset allocation stance. Within the defensive Income Securities asset class we are implementing the recent decision to use a new investment grade corporate bond exchange traded fund (PLUS), with portfolios having recently received the proceeds from the redeemed ANZ investment (ANZHA). Westpac have also announced the redemption of their similar investment (WBCHA), and we will redeploy these funds in the same manner...

20170623 – Portfolio Activity

20170623 – Portfolio Update from Michael Cooper on Vimeo. In another volatile week of trading, the ASX200 has fallen more than a 1% after failing to break through 5800 on the upside early in the week. Financials have been in the spotlight as the Senate passed the bank bill levy unchanged and Moody’s downgraded credit ratings of all Australian banks. Importantly this step to include the big four banks had previously been omitted when S&P announced their downgrade last month. Moody’s noted that their downgrade was largely due to housing debt risks. The RBA minutes released on Tuesday also noted they are carefully monitoring the housing and labour markets, given concern over house prices, household debt and a lack of wage growth. This is nothing new and was not unexpected, the minutes went on to highlight that the RBA still has a 3% growth target for the future. Overseas summer has officially started in the US this week and the fourth of July holiday will see the beginning of ”driving season”. Even with inventories expected to decline through this period oil has continued to fall and is now in a technical bear market having declined more than 10% over the past few weeks. IMPLEMENTATION TIMEFRAME As mentioned earlier we have had another volatile week for Australian Equities which underlines the uncertainty of short term market movements. It is for this reason that we generally manage initial implementation on new accounts over a number of months, whilst taking guidance from your Adviser. We observe market conditions and a variety of metrics across the range of asset classes to ensure we...

20170616 – Portfolio Activity

In Australia, economic data release yesterday were better than the market expected. The economy added 42,000 new jobs in May which was well ahead of the median 10,000 expected. In addition, April’s 37,400 increase was revised up to 46,100. Over the last three months employment has increased by a very strong 141,000 jobs, which has meant a doubling in the pace of yearly employment growth to 2.0% over that same period. For the third month running, all the growth was in full-time jobs at the expense of part-time, which resulted in the unemployment rate falling from 5.7% to 5.5%, the lowest rate since February 2013. This was despite a small increase in the participation rate from 64.8% to 64.9%. The Bank of England voted by five to three, the largest division in 6 years, to keep the Bank Reference Rate at a record low of 0.25% yesterday. Policymakers showed concerns over rising inflation and slow pay growth and the effects on household spending and GDP. US data showed manufacturing levels were steady, industrial production flat and unemployment benefit claims lower than expected. On Thursday the Federal Reserve (Fed) announced its second rate hike of 2017, an increase of 0.25% to a 1.00-1.25% range. The Fed stated inflation will be low for now but expects it to stabilise at higher levels over the medium term. China’s economy grew faster than expected; 6.9% in the first quarter, above the government’s annual target of around 6.5%. On the back of the announcement the International Monetary Fund has raised its forecast for China’s economic growth this year to 6.7%, citing ”policy support, especially...

20170519 – Portfolio Activity

20170519 – Portfolio Activity from Michael Cooper on Vimeo. This week markets finally lost their patience with the turmoil that has engulfed the Trump White House, in the process seeming to discount the prospects for tax cuts and deregulation that had fuelled momentum in US markets after the election in November. Ironically, there is now some momentum behind the move to impeach the president, though that still remains an unlikely prospect at this time. More importantly, the confidence that tax cuts, deregulation and an infrastructure program will be delivered is greatly diminished. At this point the pull-back remains relatively modest given the size of the rally, but this obviously remains a very fluid environment. With all eyes on Washington the Australian unemployment data had only a limited impact on our local share market. The April data showed a strong increase in new jobs and the headline unemployment rate fell to 5.7%. Also this week wages growth was steady, but remains at historically low levels. This is a key metric in which we are looking for improvement, but for now we need to be content with no further slowing. PORTFOLIO TARGET EXPOSURES The Individually Managed Account portfolio structure allows for variability between individual portfolios that are allocated to the same Investment Program. This ability to genuinely treat you as an individual and account for your preferences is the cornerstone of the portfolio service. When we make a decision as an investment committee we necessarily think in broad terms across all portfolios, and of course we take a long-term view in our forecasting. However, when we come to implement that decision...