Quarterly Investment Update from the AAN Asset Management Investment Committee – Q4 2023

Contrasting predictions about recession or expansion, inflation or deflation, and the direction of interest rates continues.  With this in mind, markets are likely to remain unpredictable. Liquidity is very important in this environment, providing easy access to funds and the ability to seize new opportunities, should they arise.

Central banks remain firm against inflation. However, with inflation above central bank comfort zones, this is expected to keep rates higher-for-longer and dampen the current market expectations for an early start to a developed market easing.

The market shows glimmers of optimism and equity markets maintain an optimistic stance, hoping for rate cuts to prevent an economic downturn. Notably, earnings growth and balance sheet strength will remain a key focus and geopolitical risks continue to weigh heavily on the outlook for stocks.

Looking ahead, bottom-up research and consistent engagement will be crucial in identifying the best opportunities.

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Some very good news for our AAN Asset Management model users

In our May update we discussed some changes to underlying models. While making those changes we had to opportunity to discuss rate cards with new managers and our incumbents, especially given the growth in the holdings in our AAN Core And AAN Growth options.

Key considerations in the creation of the models have always been best of breed holdings and cost reductions through scale.  We use our proprietary ‘Four Pillars’ philosophy when structuring portfolios and then negotiate favourable terms with the successful solutions.

As a product of building scale we can now announce model fee reductions in three of our models including our two largest.

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Quarterly Investment Update from the AAN Investment Committee – Q3 2023

Central bank’s aggressive approach to combating inflation, characterised by significant rate hikes, did not stall the economy as anticipated by the markets. The market’s eagerness for a slowdown has been overtaken by its desire for expansionary monetary policy.

Despite signs that the central banks remain firm against inflation, equity markets maintained an optimistic stance, hoping for rate cuts to prevent an economic downturn. The recent earnings season showed positive results, but forward guidance from companies remained uncertain, hinting at potential economic slowdown concerns.

The market showed general optimism, with equities, especially in the UK and emerging markets, outperforming. Gold prices remained relatively stable, supported by central bank buying and looming recession concerns. China, on the other hand, has been underperforming, facing concerns of a potential crisis and the impact of its policy rates compared to the US.

Markets remain unpredictable, in this environment liquidity, easy access to funds and the ability to seize new opportunities, should remain front of mind. Emphasis should also be on company balance sheets and cash flows. Asset allocation is crucial.

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Quarterly Investment Update from the AAN Investment Committee – Q2 2023

Global central banks hike rates amidst rising core inflation. Investors brace as economy cools. Equities soar despite the turbulence.

Unruly ride in US equity markets driven by mega cap tech stocks (Apple, Microsoft, Amazon, Nvidia, Alphabet), boosting S&P 500, Nasdaq to a record 37% 6-month return, and Apple’s $3 trillion market capitalisation triumph. Artificial intelligence hype soars, but investors should tread carefully with overpriced stocks.

The material change to select portfolios this quarter was the addition of the DNR Capital Australian Equities High Conviction Strategy to replace the Bennelong Australian Equities portfolio in the Core, Growth, and Australian models. Other changes were limited to adjustments to benchmark allocations.

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Quarterly Investment Update from the AAN Investment Committee – Q1 2023

After a challenging year in 2022, diversified portfolios experienced favourable returns. Despite ongoing uncertainty and further tightening from central banks, risk asset markets across the world saw substantial positive returns during the first quarter of 2023.

The major catalyst for volatility over the quarter stemmed from the banking sector, with the collapse of Silicon Valley Bank and Signature Bank in the US. Credit Suisse in Europe also collapsed, though this followed years of scandals, losses, and changes to the management team.

The material change to select portfolios this quarter was the addition of the Perpetual Focus Australian Share Fund to the Core, Growth, and Australian models. Other changes were limited to adjustments to benchmark allocations.

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Market Update – Silicon Valley Bank

On Friday American regulators closed Silicon Valley Bank (SVB) and sent it into receivership. You may never of heard of SVB before and for good reason, it was a small bank that dealt mostly with Silicon Valley, Venture Capital, and Tech Start Ups.

This is the second biggest banking collapse in US history as there was around $175 billion in deposits. 93% of the deposits there were more than $250,000, so we are not talking about your normal Mum and Dad deposit holders. It really was the big end of town. Due to the run on withdrawals that we will discuss below, regulators were forced to close it due to inadequate liquidity and insolvency.

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Quarterly Investment Update from the AAN Investment Committee – Q4 2022

The December quarter saw a weaker USD (-5.5% against the AUD), lower unemployment in Australia, higher commodity prices, higher inflation rates in Australia (and incredibly high compared to a year earlier), a positive quarter for equity markets but volatile, higher Australian 10-year government bond yields, and an inversion of the US 2Y-10Y bond yield spread.

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Quarterly Investment Update from the AAN Investment Committee – Q3 2022

Inflation, a stronger USD, and central bank interest rate hikes shattered most markets over the September quarter. The US Federal Reserve was the catalyst for much of this as inflation became stickier and the Fed became more aggressively hawkish. The scale and breadth of drawdowns across asset classes were severe.

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Quarterly Investment Update from the AAN Investment Committee – Q2 2022

The first half of 2022 was characterised by the harsh reality of elevated inflation and the combative stance taken by central banks around the globe. Already elevated inflation indicators moved higher, causing central banks to hike interest rates further than markets expected. Slower economic growth and recession fears are now front of mind.

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