Be selective, but stick with shares
Originally published on Australian Financial Review on 13 January 2020
[Adapted from Australian Financial Review ]
'Last innings' of bull market
Robert Talevski, founder of Activus Investment Advisors, said while Australian and global stocks were expensive given they were above long-term price to earnings averages, he stressed the importance of maintaining exposure to equities.
“We continue to maintain our position that the equity market is entering the ‘last innings’ of a bull market."
He has positioned his portfolios with equal weight to Australian and global equities.
Australian equites are supported by reasonable economic growth, low and supportive interest rates and reasonable commodity prices," Mr Talevski said.
But that was countered by "relatively low earnings expectations, high household indebtedness, declines in business and consumer confidence and low wage growth".
Globally, factors such as reasonable GDP growth, ultra-low unemployment and a low and declining interest rate environment should support global equities.
Mr Talevski said he was paying attention to "business confidence" as a key forward-looking measure in determining corporate employment levels.
"When business weakens it feeds into employment, leading to fewer jobs, and consumer confidence,'' he said.
While Mr Talevski expected shares to deliver positive returns in 2020, he said there could be challenges in 2021 if there was an upwards move in inflation.
Stay long with comfort
On December 31, for example, a spike in Australian bond rates triggered a fall in Australian stocks, even as other markets gained. The most expensive stocks, and those sensitive to interest rate shocks, led the market down.
Asset consultants such as Activus are also involved in manager selection and Talevski says there are nascent signs that active managers may finally prove their worth in 2020 after lagging passive index returns.
Time to be active
"We have a sizeable allocation to passive and we have done well out of that, highlighting the importance of selecting the right investment manager and considering both approaches - in some sectors, one approach may be suited over the other," he said.
"But we noticed a pick-up of active manager performance over the quarter, which is a good sign."