Volatility continues

As always, perspective helps. The purpose of multi-asset SAA funds is to deliver on a long run set of risk and return objectives.

The fact that equity markets can drop by a lot in any given year doesn’t undo or diminish (and is in fact the enabler, as it gives rise to the risk premia that do the compounding!) of this.

Zoom out [as you look upon the constellation of asset prices below]…


…and you can go from feeling perhaps a tad grim to feeling (presumably) somewhat better.

The good news is that the stock-bond correlation is behaving broadly normally again, so we needn’t freak out overmuch about equity market vol, because our defensive assets are once again reducing overall portfolio drag.


Doesn’t mean treasuries can’t get to 3.5%, in an inflationary environment, but there’s also no need to punt all your bonds.

Note: it also helps that our funds are positioned with a strong tilt to value, in a market repricing expensive secular growth, had only just unwound a very large tilt to energy (material recent winner) and in direct equities runs a beta of .80x, with plenty of “inflation hedge” names in the portfolio, making us sweat a lot less on days like today.

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.

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