Portfolio highlights

The Portfolio generated a positive return for August, with our tactical positioning to diversify into Fixed income, Property and Infrastructure proving fruitful over the month. These asset classes outperformed the largely negative backdrop of global equity returns.

Standouts from our fixed income sleeve included Bentham Global Income and Janus Henderson Diversified Credit, both benefiting from falling bond yields, spreads remaining tight, and yield enhanced credits. Manager Resolution Capital in both global listed property and infrastructure produced strong positive returns, albeit marginally under benchmark for the month. Bank exposure in the Direct Australian shares portfolio contributed over the month. The banks continue to sit at record high valuation levels, spurred on after the latest FYE results revealed more resilient than expected borrowing, and lower than expected bad debt expenses.

There was considerable turbulence in share prices in early August given higher interest rates in Japan, subdued US economic activity and rising tension between Iran and Israel. US shares initially fell sharply as modest jobs growth and weaker business surveys generated recession concerns. However, Wall Street rapidly recovered with enthusiasm for Artificial Intelligence prospects, solid corporate profit growth results, better US inflation data and hopes that lower interest rates were coming soon. Soothing comments from the US central bank that the “time has come to adjust policy” were supportive of US shares by signalling lower interest rates are likely in September. Chinese share markets drifted sideways with continued concerns over a weak property market with falling housing construction and prices. This has seen Chinese consumer spending remain subdued with economic growth now dependent on infrastructure spending and manufacturing exports.

Australian shares also ended August with a flat performance after being buffeted by global share price swings and concerns over Australia’s sedate economic and corporate profit performance. There were some economic positives with solid job gains in July and annual inflation moderating from 3.8% to 3.5%. However, retail spending is struggling with the central bank noting that many households were “making difficult adjustments” given the ‘cost of living’ pressures. Australia’s corporate reporting season confirmed a disappointing performance for the last financial year with an annual profit fall of circa 4%. There were some large profit falls for the energy sector as well as industrials and telecommunications.

Global government bond yields fell sharply given better US inflation results and hopes for lower interest rates later this year. The continued political turmoil in the Middle East with the Hamas – Israel conflict and rising tensions between Iran and Israel also added to the ‘safe haven’ status of government bond markets. Credit markets spreads rose initially in August given global growth and political concerns but managed to stabilize with the continued strong investor appetite for yields.

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