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Portfolio update 16 December 2022

As the end of the year fast approaches, we bring you our final portfolio update for 2022.

Recap of 2022

It has been a tumultuous 12 months, commencing with Russia invading the Ukraine, and then economic issues with global inflation hitting its highest levels in decades, with central banks around the world lifting interest rates from generational lows to try and combat it.  Inflation remains stubbornly high, and while the interest rate rises are not expected to have a meaningful impact on inflation until 2023, the spectre of a global recession looms with the concern that interest rates will curb spending to such an extent that global growth will slow and unemployment will then rise.

The impact of the above factors has seen equity markets in many parts of the world enter bear market territory during the year (defined as a 20% fall from recent highs), whilst the traditional safe harbour of fixed interest has also suffered one of its worst years on record in what has been somewhat of a “perfect storm” for investments in 2022.

Throughout all of this volatility, the Collins House investment Committee have been constantly managing your portfolio, making adjustments where necessary to try and ensure that your portfolio hasn’t suffer too much during this period.

The investment universe we have to choose from is very broad and we have been able to make tactical shifts in the portfolios to protect them from larger falls.  These include:

  • Investing in short duration fixed interest securities, which have significantly outperformed longer duration fixed interest.
  • Investing in global “value” stocks, which have in the past 12 months significantly outperformed global “growth” stocks.
  • Investing in gold and global healthcare, which have produced positive 12 month returns.
  • Investing in global infrastructure which has continued to provide attractive income and returns significantly better than broad global equities.

We often compare the performance of our portfolios to those of the Vanguard Diversified Exchange Traded Funds, which provide a pure index return.   For comparison, here is how our model portfolios have fared versus Vanguard for the 12 months to 30 November 2022:

Returns to 30 November 2022

As the return figures show, it remains important to maintain a long term view with your investments, and try not to let the short term volatility lead to knee jerk reactions with your portfolio.  However, if you ever have concerns, then please don’t hesitate to contact your Advisor.

Outlook for 2023

It is widely expected that both Australia and the US will see further rises in interest rates early in the new year, with an anticipated end to the rate hikes by the end of the March 2023 quarter.  There is however, still some uncertainly around how high they will go by then.  From there, eyes will be on inflation and how quickly it can recede towards the desired levels before central banks then decide to start cutting rates again.  This is unlikely to occur until 2024.

So, with this outlook in mind, we anticipate that investment markets will continue to display volatility into the early part of 2023, at least. 

We always keep in mind the words of the world’s most famous investor, Warren Buffett who said “Be fearful when others are greedy, and greedy when others are fearful”.  What this means, in part, is that often when market pessimism is at its greatest, is when you find the best bargains.  So we are always ready, regardless of general market sentiment, to take opportunities if they present themselves.

At this point in time, we remain comfortable with the mix of investments in the portfolios and don’t envisage any immediate changes, apart from those communicated to you in our last update on 16 November 2022.  Your investments provide exposure to all of the major asset classes as well as some alternatives such as metals and infrastructure, target quality companies in a diversified manner, and give you exposure to over 2,000 underlying securities.

If you have any questions about your portfolio, please contact your Advisor.

The team at Collins House wish you and your family a Merry Christmas and a safe and prosperous New Year.  A reminder that our office is closed from 5pm Wednesday 21 December and re-opens on Monday 9 January.  If you have an urgent need to contact us during that time, please contact Dominic.

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