Asset Allocation Articles

Global tech companies, once focused solely on rapid growth, are now adopting a strategy typical of more traditional value businesses — issuing dividends. Meta's introduction of its maiden dividend earlier this year marked a significant departure from the tech sector's usual emphasis on buybacks. Shortly after, Salesforce, Booking, and Alphabet followed suit, announcing dividends for the first time.

Remember when the 60/40 portfolio was regarded as a rock solid approach to portfolio construction? How times have changed.

Financial markets thrive on long term correlations holding for the simple reason it provides high-probability context for investors to make investment decisions. So when a long term correlation breaks down that most investors thought made financial and intuitive sense, it’s generally worth delving deeper.

Multi-asset funds fell out of favour during the prolonged low-interest-rate environment following the 2008 global financial crisis. However, the landscape shifted post-COVID with heightened economic worries prompting a resurgence in multi-asset strategies.

It’s a well-known fact in investment circles that the pain of a losing money greatly exceeds the positive feelings associated with investment success. The cognitive bias that explains this is called loss aversion.

Until recently, investing in ETFs typically meant opting for a passive, index-based approach, foregoing the benefits of active management. However, 2023 saw a marked acceleration in active ETF uptake across the globe.

Corporate bonds are once again popular with Australian and global investors alike. With markets expecting the RBA and the Fed to start cutting rates in the coming months, investors have been increasing their corporate bond exposure to lock in the highest yields available in recent years. We investigate whether or not this is a wise strategy below.

You may have heard the joke about central bankers … how many central bankers does it take to change a light bulb? None. If the light bulb needed changing the market would have done it already. It won’t surprise you to hear not many central bankers find this joke funny. But what if the light bulb that needed changing was persistent inflation, and what if the market believes it can relax as the RBA has already changed that light bulb?

Despite the overall bullish trend in equities, there's been a notable surge in cash being held by money market funds with an all-time high in those assets recently reached. In fact, total assets in US money market funds, which invest in cash-like securities such as short-term Treasury bills, grew to $US6.02 trillion last month, with both retail and institutional funds increasing their allocations due to the higher short-term rates on offer.

Most investors currently lack exposure to emerging markets after a generally challenging decade for the asset class prior to 2023. However, over the past year the emerging markets narrative has improved for some structurally-attractive emerging market countries where stock market momentum continues to build.

The fastest rate rising cycle in history was always going to test the commercial property fund sector. With typical loan to value ratios of 40-70%, it’s an asset class which is at the mercy of the RBA’s cash rate decisions. As such, investors tend to be bullish on commercial property funds when rates are falling, but rising rates generally spell bearish sentiment.

It’s been a torrid couple of years for ASX smaller companies with most investors turning their backs on the asset class like the plague. The extent of their recent disfavour has been hard to fathom given the positive trend in equities since the pandemic. This raises the question: is now the right time to revisit small and micro caps whilst others remain fearful? To answer that, we’ll need to delve into the reasons for the recent underperformance for a steer as to what’s coming next…