DAA positioning

Markets “feel” a bit like they are running out of puff, as yields climb ahead of Jackson Hole. Fed likely to push back on the “dovish pivot” interpretation of/by the market, and will continue to tighten into an inverted yield curve.

Given the fairly strong rally in risk, into what we think is a misinterpretation by the market (there is no dovish pivot, there is no pause in the rate hiking cycle) we’ve been inclined to fade the rally, using Aussie shares as the main DAA lever, given a) it’s better relative performance/lower-drawdown and b) it’s high beta risk-on-risk-off nature and c) it’s greater allocation to resources, which have performed well in this recent bounce.

The single best model we have is predicated on information contained in the shape and slope of the yield curve, and that model is flashing red.

We are mindful that you can adjust the yield curve for risk premia, here, term premia, and come out with a much more benign reading (also shown above) which is why we aren’t/don’t use the model to sudden thunder out of equities.

But, at the margin, given recent strength and our worries about the Jackson Hole symposium, we are moving somewhat more defensive.

We’ve also had a fantastic run of outperformance in our infrastructure allocations, which have proved an excellent inflation hedge, and are using that strength to move modestly lower.

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.