August 2023

By Forrest Private Wealth

At Forrest Private Wealth, our investment philosophy underpins our financial planning advice, which ensures our client’s wealth benefits from long-term exposure to equity markets. We believe holding a well-diversified portfolio of predominantly dividend-paying businesses over a long-term period is essential in financial planning for wealth accumulation and, ultimately, retirement planning.

By following our retirement planning process, a Forrest Private Wealth financial planner stays true to their investment advice, ignoring the noise and pressures of the market to provide their clients with a stress-free retirement. At Forrest Private Wealth, our financial planners capitalise on an investment philosophy that provides predictable income streams from equity markets, setting clients up for their desired retirement.

Long Term Portfolio

Global equities softened in August, with some of the recent gains eroded. The macro outlook continues to dictate market sentiment with interest rates being at the forefront. Despite this the Long portfolio posted a gain for the month, driven largely by strong performance in the small and mid cap exposure.

Domestically the August 2023 reporting season has drawn to a close and, in aggregate, results suggested our economy was a little more resilient than expected. A lack of earnings guidance suggests corporate earnings growth is slowing with the sharp increase in official cash rates over the past 15 months. That being said, many companies recorded solid revenue growth up to 30 June 2023, often surpassing their own projections. This reporting season saw more companies beat expectations than miss, by a ratio of 5:3.

Although earnings have proved resilient to date, it is expected that macro conditions will cause continued volatility across equity markets providing opportunity to reset parts of the portfolio taking some recent gains in favour of opportunities presented.

Short Term Portfolio

The recent minutes from the RBA meeting emphasized that, even though the RBA had maintained the current rate, it was considering a 25-basis point increase and highlighted the potential for further tightening. The bank’s rationale for raising the cash rate by another 25 basis points was primarily based on the recent surge in petrol prices, a critical factor influencing households’ inflation expectations.

Inflation has climbed from 4.9% in July to reach 5.2% in August, marking the first significant uptick in the monthly CPI indicator since April. According to the ABS, the main contributors to this August increase were housing (+6.6%), transportation (+7.4%), food and non-alcoholic beverages (+4.4%), and insurance and financial services (+8.8%).

Given the rising petrol prices and the potential for wage growth to trend upward, the likelihood of another rate hike in the coming months has grown. All eyes will be on the RBA’s next meeting scheduled for October 3rd, especially as it will be overseen by the new governor, Michele Bullock, for the first time.

Micro Cap Portfolio

Global equities softened in August, giving back some recent gains. The interest rate outlook continues to dictate market sentiment. In the US inflation data appears to be heading in the right direction and the labour market there remains strong. This supports the soft landing and view the US interest rate hiking cycle may be coming to an end. However, the Fed have indicated that rates will stay higher for longer and potentially even increase again.

Equity markets have also shifted focus on China, where the economic data has been consistently softer than expected for some time as the weight of issues observed around indebtedness and falling prices in the Chinese property market take their toll on economic activity levels.

Domestically eyes were on reporting season for Aug with the macro outlook remaining unchanged from prior months. 2023 results were better than anticipated on aggregate although share price responses were volatile. The uncertain economic backdrop saw less companies willing to provide earnings outlook guidance at this juncture with investors having to wait until the AGM season in October/November 2023 for further trading updates. Growth stocks did well through reporting season provided they could demonstrate that costs were appropriately set for the economic conditions of the day and that future growth optionality was very much preserved or indeed being pursued, but profitably so.

Fund managers employed in this portfolio held a number of investments where management delivered a better near-term profit and stronger growth outlooks than the market expected delivering a reasonable month for the portfolio.

Forrest Private Wealth’s discipline in providing financial planning, retirement planning, and wealth management services to its clients allows our clients to benefit from years of experience providing financial advice through major impacts to equity markets where staying the course has helped them.

Forrest Private Wealth has a dedicated team of financial planners and support staff providing clients with peace of mind in working towards and achieving their life goals.


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