May 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

The Long account closed the month down in a period where inflation and the direction of interest rates continue to dominate the narrative. Many a financial columnists news feed and market ramifications on “where to now” is feeding into the current short termism environment with strong daily movements across differing sectors and regions now the norm. Known as “quarterly capitalism”, where quarterly guidance is the focus over long term investment, short termism is fraught with danger and goes against many an investor playbook. What it does offer though is opportunity and we note our overweight exposure to smaller companies being maintained through this period where their values are at historically low levels when compared to their larger peers.

Short Term Portfolio

Bond markets have factored in the anticipation of a shift in central bank policies from raising interest rates to reducing them in recent months. Inflation has been on a downward trajectory in many countries, primarily due to lower prices of energy, food, and goods. However, the persisting issue lies in services inflation, which is predominantly influenced by rising wages and robust employment figures. This concerns central banks, as it has the potential to trigger a wage-price spiral, and there is limited evidence to suggest that demand for labour is
slowing down.

In our view, these circumstances raise the likelihood that central banks will need to maintain higher rates for an extended period. This approach accounts for the time lag in the effects of monetary policy on the economy, considering the significant number of fixed-rate mortgages and the impact of accumulated savings during the pandemic, which have shielded consumers thus far. Our viewpoint regarding holding longer duration investments remains unchanged as we approach the peak of the interest rate cycle.

Micro Cap Portfolio

Global macro data now points to decelerating inflation. Finally! This does however raise the question of how much more interest rate medicine is needed to bring inflation back into the target range. Evidence is growing of the cumulative slowing impact of rate rises on western economies, however labour markets remain stubbornly strong fuelling wage inflation that is incompatible with stated inflation targets.

Markets currently swing either way with the release of each macro data point that is seen as either supportive or contradictory – the very definition of volatility. Volatility brings opportunity, as well as the need for caution. Small Cap stocks have materially under-performed Large Caps through 2022 and calendar year to date, with the growth stock area of the Small Cap market bearing the brunt of that sell off.

The market is rewarding select small cap growth stocks for cutting costs, particularly growth expenditure, deferring capex and instituting price rises, effectively preserving future growth optionality. Mangers employed in this portfolio are looking for those stocks whose fundamentals offer confidence of being able to grow strongly tomorrow where the valuation regime does not price that. This is setting the portfolio up for outperformance when the market turns to favour growth in stocks with good fundamentals.

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.


What Our Clients Are Saying