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.

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