October 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

Continued strength in 10-year bond yields, shifting expectations on the likelihood of future rate rises over cuts, and recent geopolitical activity have provided a near-term climate of investment uncertainty. Unsurprisingly given the macro backdrop, the Long account closed down for October. Whilst negative months are never great, they are expected throughout the life of an investment journey.

Considering October was the weakest month for share markets for 2023, we are impressed with the portfolio’s resilience. Especially when considering the investment bias the Long portfolio has to smaller companies (for the regular outperforming aspects this sector continues to provide over rolling three and 5-year periods).

This is a position we will continue to hold. Despite small caps having materially underperformed their large-cap peers over the past 18 months, it is a position we are highly optimistic about leading into 2024, given the current “mismatch” in valuation. What we are currently seeing is a significant valuation de-rating across small caps, especially in the Australian small cap sector.

This is a situation that has occurred previously, but never at such a large valuation gap, with many small caps, despite improved fundamentals and financial strength, sitting well below their pre-COVID levels. Our investment managers in small caps are heavily cognisant of this mismatch and are well-positioned to take advantage.

Short Term Portfolio

In October, the ongoing sell-off in global bond markets cast a negative shadow over broader asset markets, resulting in a challenging month for the financial landscape.

Despite these difficulties, the Short SMA managed to achieve a positive return. Although global economic conditions show signs of improvement, the financial markets have been significantly shaped by the increase in US bond yields in October, impacting various asset classes. Investors have factored in expectations of a ‘higher for longer’ interest rate scenario, leading them to seek a higher premium when holding longer-term bonds as compensation for perceived risks. The upsurge in bond yields has somewhat diminished the lustre of equities.

The recent rise in the RBA cash rate from 4.10% to 4.35% in early November further confirms the ‘higher for longer’ trend. All eyes are now on the RBA meeting in December, with most observers (excluding pensioners with no debts) hoping for some relief.

Micro Cap Portfolio

October was a volatile month for equity markets globally. The October volatility can be attributed to the increase in 10-year bond yields which led to another compression in price to earnings ratios in valuation of small and microcap shares (also known as PE compression). Negative sentiment was further compounded locally by the RBA comments regarding future rate hikes which we saw materialise in November.

November historically ranks as the second-best month for US equity returns outside of July. We’re hoping that despite the macro concerns that impacted October, November rebounds quickly.

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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