10 Jan December 2021
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
Whilst the Long account ended the year positive it is the events of the New Year that is front of mind. Inflation. Domestic, international, financial, and economic. It’s the dominant topic right now, specifically whether it will spike rate rises sooner and more aggressively than Central Banks around the world have planned. Is it structural or transitory, or both? At time of writing, whilst such uncertainty saw January record its worst start to the year since the late noughties, the RBA has not been spooked, continuing to keep rates at bay at yesterday’s meet, in line with their broader plan. This is consistent with Central Banks who have repeatedly backed their own plans. Ongoing disruptions to supply chains through COVID will continue to drive prices higher (transitory inflation) in the short term. Leading economic indicators such as unemployment and GDP continue to suggest the economy is tracking ok. Commentators suggest that January is simply a case of an overreaction in the short term. We have previously mentioned ups and downs are all part of investing and the importance of not overreacting to inevitable short-term market movements. Importantly, not being placed in a position where you need to exit is the secret to truly capturing the long-term returns share markets provide, and the distributions and dividends they continue to pay whether the market is up or down.
Short Term Portfolio
December was a relatively muted month for Fixed Income markets, while inflation has continued to be on everyone’s lips. The debate as to whether inflation is transitory or structural in nature is gaining momentum as the US recorded an annual rate of inflation of 6.2%, the highest rate in three decades. What is interesting is that we are observing a growing divergence between what is driving inflation in different countries, which is making the debate between structural and transitory inflation more nuanced. There is no doubt that supply shortages related to COVID-19 have been putting upward pressure in input costs for many companies around the world. Australia’s inflation rose 1.3% in the three months to December, bringing inflation for the full 2021 year to 3.5%. This is above the Reserve Bank medium term target range of 2-3% inflation. It will excite speculation about the central bank lifting interest rates far sooner than 2024 but don’t expect the RBA board to be spooked into a rate rise so easily as confirmed by it’s decision to leave rates at record levels on Feb 1st. Central banks like a little inflation but not too much. History shows prices either falling or increasing too rapidly are bad for an economy. When inflation rises above the sweet spot, the normal response of a central bank would be to cool demand by lifting interest rates. The RBA also confirmed in the February meeting that it’ll be ceasing further purchases under the bond purchase program from the 19th February which again was not unexpected. Regardless of future rate calls, the Short SMA remains well diversified across the fixed income credit spectrum to respond to any current and future market conditions.
Micro Cap Portfolio
Domestic data continues to suggest that the economy remains in good shape. However rising COVID infection rates have added further pressure on supply chains and has dampened consumer demand. Despite these impacts being short term in nature they are resulting in volatility in equity markets. Global equities were also volatile in December however made a late comeback as fears on the severity of the highly infectious Omicron COVID variant moderated. Growth stocks were outperformed by value stocks in the last quarter of 2021 with a string of weaker than expected quarterly updates out of the US tech sector. In the medium term the COVID pandemic does seem to be moving towards an endemic. Near term there are a number of obstacles to navigate such as ongoing COVID disruptions, high inflation and rising interest rates. We will always look to invest with managers that are capable of taking advantage of market overreactions due to short term impacts.
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.