Market & Portfolio Update – December 2024
Market Summary
During the quarter the TWD managed accounts performed well, delivering positive returns between 3.3% on TWD Balanced and 5.2% on TWD Aggressive. Australian equities were a key contributor delivering alpha over the S&P/ASX 200.
Market Outlook
In early November, the US election settled with a convincing victory for the Republican party. This win covered all three chambers and was certainly more emphatic than expected. We would however note that in the lead up to the election, both betting markets and crypto markets were pricing this outcome far more aggressively than standard polling was suggesting.
Trump’s appointment of Scott Bessent as Treasury Secretary gives away the key risk the administration perceives, a sharp rise in 10-year bond yields, especially beyond 5.5%, which could severely impact the US banking system and derail planned spending. Bessent’s expertise is considered suited to navigating a volatile sovereign bond market and reduce borrowing costs. Elsewhere, Trump’s other policies such as tax cuts, protectionist trade measures and a pro resource extraction will attempt to fuel US growth. Thus, we foresee these measures causing a rerate in US focussed companies without multinational operations and the energy sector as growth options may return.
A recent report by Deloitte Access Economics suggests that Australia’s fiscal deficit by 2025 is likely to exceed expectations, with government revenues falling short due to the waning boost from rising commodity prices. This could reshape labour markets, where government-driven demand—particularly in healthcare and social assistance—has grown significantly since the Global Financial Crisis. The budgetary strain, coupled with a general election likely in May 2025, is expected to shift political focus back toward fiscal discipline. This could weaken labour markets, a critical factor in reducing inflation and interest rates, which the bond market appears to underestimate. Despite modest rate cut projections, labour market softening could accelerate into late 2025, impacting rates and corporate earnings.
SMA Portfolio Changes
We are adding the JPMorgan US 100Q Equity Premium Income Active ETF (JPEQ) ETF to the portfolios. This fund aims to deliver returns comparable to the NASDAQ 100 with a lower volatility and a very high distribution yield, through a combination of a portfolio that targets the more stable stocks in the index, and a call overwrite strategy to generate income.
We are adding Breville Group (BRG) and Technology One (TNE) to our Conservative and Moderately Conservative portfolios. TNE implements systems across largely public and semi-public institutions, growing earnings and revenues aggressively in recent years. Breville Group is a key global player in the coffee machine space, delivering smart and innovate solutions worldwide and expected to continue to grow earnings strongly. We’ve removed Incitec Pivot (IPL) which appears fully valued.
We’ve added Suncorp (SUN), Qube (QUB) and Steadfast (SDF) and Santos (STO) to our Balanced, Growth and Aggressive portfolios. QUB is a port and port logistics operator spun out of Patricks. It is attractively valued, with a reasonable growth trajectory and steady earnings. SUN and SDF are benefitting from strong conditions in insurance, with rising premiums and falling liabilities. STO is our preferred Oil exposure, and we do see a greater opportunity for a sector re-rating as exploration options multiply in the new Trump administration.
Elsewhere in the managed accounts, we are reducing our allocation to Quality Growth in favour of Value and Small caps within the international equities asset class and we have adjusted our weightings on several positions within the Australian Equities asset class.
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