Global equities versus Aussie equities

Nicholas Grove  |  11/07/2016Text size  Decrease  Increase  |  

Nicholas Grove: I'm Nick Grove at the Morningstar Investment Conference in Sydney, and I'm joined by Brad Bugg.

Brad, in your presentation you mentioned that you guys favour global equities over Aussie equities. Why is that?

Brad Bugg: Yeah, that's right. We do favor global equities over Australian equities at the current time and the main reason for that is the relative valuations that we see out there. But I think it's important to distinguish what are global equities.

We try to break it down as much as we can by region, by sector. So, we're really trying to target particular regions or sectors rather than just blindly investing in sort of what a benchmark might dictate us to. So, in our portfolio, we sort of have heavy weights towards emerging markets, Japan, countries which may not necessarily get a big weight in a traditional benchmark index, but that's where we see the opportunities and that's where we're biasing our portfolios towards.

Grove: And whereabouts you're seeing opportunities in fixed income?

Bugg: Fixed income is an increasingly problematic area. Day-by-day we continue to see yields fall. But here in Australia we think that it's a generally supportive outlook for bonds. We obviously saw the RBA cut rates on sort of budget day and we think there's a real prospect that they could cut them even further. And given that environment we think it's a generally supportive environment for Australian bonds. But when we look internationally, it's a little bit more challenged. I think a lot of the market is showing negative yields and investing in negative yields doesn't really make a lot of sense to us and investing in the biggest part of the market, the US, there's a real prospect that US interest rates will rise. So, we're tending to sort of bias our portfolios to Australia over global at the current time.

Grove: And Brad, in your presentation when you were asked about how investors should make their growth and defensive split, you, kind of, mentioned that, well, these notions of growth assets and defensive assets need a little bit of redefining as such. Why do you believe that's the case?

Bugg: Yeah, that's right. I mean, we look at sort of growth and income assets and what has traditionally made up those universes. But in an environment where valuations are generally expensive, we believe that you're not necessarily going to get the same characteristics from certain asset classes which you may have done historically. So, I think bonds are a good example of that. Government bonds, everyone used to rely on them to be the diversifier and protect your capital in a portfolio. With the yields so low, we're not so sure they're going to give you those same qualities. So, we think it makes sense to rethink where assets sit in your portfolio and in relation to growth assets with expensive valuations, they may not give you sort of the growth profile that you're after. So, maybe looking at something which traditionally goes in an income or defensive bucket, like emerging market bonds, has a better place in your growth portfolio.

Grove: Brad, thanks for your time today.

Bugg: No problem.

Grove: I'm Nick Grove at the Morningstar Investment Conference in 2016.

Video Archive...

Are European stocks overvalued?
27/03/2017  Isabel Levy of French asset manager Metropole Gestion explains how she uses fundamental industrial analysis to avoid value traps and identify the fair value of European equities.
Which funds are worth paying for?
23/03/2017  High active share funds--that is, those managers who take off-benchmark bets--outperform those which are low active share. So, ban closet trackers from your portfolio.
Bond market wobbles no cause for panic
21/03/2017  Australian bonds see only a slight tremor in response to the Fed's rate rise, says John Likos, Morningstar's senior credit analyst, who also provides insights on the new, and anticipated, hybrids from Australian banks.
ESG: Essential steps for successful long-term investing
21/03/2017  Want sustainable long-term returns? Morningstar UK reveals the essential components and the fund providers who are getting it right.
Few values left in global stock market
20/03/2017  Morningstar's directors of equity research think investors need to be cautious in the market today and offer some of their best investment ideas.
Why the time is right to invest in emerging markets
20/03/2017  Hilde Jenssen from Norwegian fund manager Skagen admits that emerging markets have disappointed investors over the past three years--but says valuations are attractive and reforms are boosting returns.
Johnson: Fed's path may not be smooth
16/03/2017  The Fed's plan for stair-step rate hikes in the coming years will likely be derailed by economic reality, says Morningstar's Bob Johnson.
First-half 2017 earnings season insights
15/03/2017  Companies produced reasonably good results overall with only a few standouts, even as a cost-out theme dominated, says Peter Warnes, head of equities research, Morningstar.
The growing appeal of LICs
06/03/2017  The popularity of listed investment companies is on the rise once again, but there are several things investors need to be aware of before buying in, explains Michael Malseed, Morningstar senior analyst, manager research.
Earnings season wrap: BHP exercises good cost control
27/02/2017  As the curtains close on the 1H17 reporting season, BHP books earnings that are slightly softer than expected, while Woolies takes market share at the expense of margins.
Possible $2.5bn tailwind to drive hybrid demand in 2017
22/02/2017  Strong supply dynamics and ongoing economic stability should create significant opportunities for hybrid investors in 2017, according to John Likos, senior credit analyst, Morningstar Australia.
Earnings season wrap: Telstra feels competitive heat
17/02/2017  As the 1H17 earnings season rolls on, Wesfarmers posts a bumper profit, Newcrest restores its interim dividend, while Telstra's profit falls as it feels the heat of intense competition.
Earnings season wrap: Rio Tinto's dividend surprises
10/02/2017  Rio Tinto delivers a surprise full-year payout of US$1.70, NAB records a soft first quarter, and CIMIC posts an annual net profit in line with Morningstar's expectations.
Leveraging the opportunity of international students
07/02/2017  Co-founder and CEO of Navitas, Rod Jones, explains the firm's business model, which is built largely around international students and university partnerships.
Xero CFO gives outlook for 2017 and beyond
02/02/2017  Sankar Narayan, chief operating and financial officer of accounting software firm Xero gives his insights on the company's business model and outlook, with Morningstar analyst Gareth James adding his views
Asia growth engine not threatened by Trump, says Barings
30/01/2017  Long-term investors in China and wider Asian equities should not worry about President Trump, says Barings head of Asian equities Hjung Jin Lee.
Shifting fortunes for ANZ, more of the same for CBA in 2017
12/01/2017  Australian banks are well-positioned as they head into 2017, with ANZ moving from least profitable in 2016 to become one of the sector's top performers and CBA remaining an investor favourite.
Is Trump a threat to emerging markets?
12/01/2017  Is President Donald Trump a threat to emerging market returns? Paul Jackson from the UK-based Source ETF considers the outlook for sector and where investors can find the best opportunities.
Platinum, Aussie banks and Peter Warnes among top interviews of 2016
22/12/2016  We look back on some of our most notable interviews of the year, as Morningstar analysts and external experts helped us delve into some of the biggest events that shaped Australian and global markets in 2016.
Oil price finds sweet spot, while mining hits rock bottom
20/12/2016  The rise in oil prices should see improved performances from Australian producers in 2017, while mining services companies will continue to struggle amid weaker Chinese demand, says Morningstar equity analyst Mark Taylor.