Portfolio update December 2021

December was another month of high dispersion across markets. The Federal Reserve issued more hawkish commentary than the market expected, which weighed on bonds, but equities continued to rise. This month value stocks took the lead over growth stocks. Our portfolio positioning added value but our international and Australian equities investments rose less than the broader market.

Detailed performance reports are available for our clients here.

December 2021

Multi-asset market update

Risky assets performed well in December, with international and Australian equities delivering positive returns, while property and infrastructure were also up strongly. Bonds fell as interest rate expectations rose following more hawkish commentary from central banks. Within equites growth gave back some of the outperformance from November as value stocks outperformed growth both domestically and overseas, with quality stocks intermediate, but this masked significant differences between sectors.  

Our defensive positioning added value, primarily the underweight to fixed interest and the overweight to alternatives. But at the investment level our holdings lagged behind market indices that were dominated by more speculative investments.

Multi-asset portfolio update

The growth outlook remains robust, but the increasing likelihood of higher interest rates as central banks seek to end extraordinarily accommodative interest rate policies and the high premium attached to high quality growth assets means we remain underweight equities and fixed interest, and favour value equities and less expensive sectors over high priced technology stocks. 

The strong returns in investment markets mean that even with the defensive tilt our portfolio is comfortably above its strategic return target.

Equities market update

The Australian equity market rose in December, recovering its losses from the previous month. Dispersion between sectors remained high, with utilities up nearly 8% and IT stocks falling by more than -5%. Iron ore stocks continued their recovery from their slump and lithium miners continued their strong run. Banks also regained some lost ground as global expectations of higher interest rates continued to firm.

Our portfolio rose less than the index over the month. Once again our sector allocation added value, however falls in the share price of TPG and not holding pre-earnings mining stocks, which were sell supported by the market, meant the portfolio lagged the market overall.

Equities portfolio update

We continue to be negative on the outlook for bank lending as interest rates are likely to rise as the RBA moves to end its extraordinarily accommodative interest rate positions. We also favour low cost producers of commodities that offer good value.

Given the extreme value dispersion in the market we have lower exposures to high quality growth companies than the historical average of our strategy. While these remain excellent companies, the current high valuations will make it difficult for them to deliver acceptable returns to shareholders over the long term.

Concentrated Absolute Return portfolio update

The portfolio produced good returns in December, as falls in TPG were offset by gains in other sectors.   

The portfolio is focussed on companies that are trading at depressed valuations following COVID and which should do well when the equity market recognises that earnings have normalised.

The portfolio’s largest sector allocation is to industrials in a series of discounted companies that will do well if their earnings return to pre-COVID levels. Within the materials sector we have positions in select companies outside of iron ore and coal, whose prices we feel are unsustainable. The portfolio’s largest positions are in TPG and Ramsay Health Care, both of which are quality companies that are trading at deep discounts to historical valuations.

The portfolio has no holdings in the Australian banks, which are trading on elevated multiples of high earnings stoked by an unsustainable growth in mortgage lending, and no direct exposure to iron ore.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.