As we enter 2022, Six Park’s Investment Advisory Committee (IAC) members share their thoughts on three key areas:
- Australia and its place in the world (Brian Watson AO);
- Bonds, inflation and interest rates (Mark Nicholson); and
- The view of global equities from the US (Lindsay Tanner).
Brian Watson AO is Six Park’s co-founder and Chairman of the Investment Advisory Committee. Prior to co-founding Six Park, Brian was a founding Member of the Board of Guardians of the Australian Government Future Fund, and served on that Board from 2006-2012. He is a former Deputy Chairman of the Australian Government’s Innovation Australia Board and a former chairman of JP Morgan Australia. In New York visiting family at the time of writing, Brian shares the view of global equities from the United States.
Watch and wait as challenges unfold
“Having spent the past month in the US, primarily for a long overdue family reunion, it has been stunning to see the number of challenges currently facing the global economy come into sharper view. It is easier to see the issues from here, because the media is less overwhelmed by COVID case count reporting and the antics of entitled professional tennis players, and more focused on COVID’s impact on the global economy, the rising geopolitical tensions in Eastern Europe, and the impact a single obstructionist West Virginian Senator is having on the most important policies of President Biden.
“We are currently seeing a widespread downturn in global equity markets, with most indexes either at or heading for the 10% drop from recent peaks that defines a ‘correction’.
“This is largely due to worries about the resurgence of inflation, and the likely increases in interest rates that will follow, but there are also other factors in play. To be sure, there is a laundry list of issues simmering away, including:
- the uncertainty of when the pandemic will end, and how many more punches it can throw;
- the risk of policy mistakes as the US Federal Reserve begins to raise interest rates, and withdraw its liquidity support from the markets; and
- constraints on strong leadership in Western democracies (some inherited such as in US and Germany – others clearly own-goals such as in the UK) in the face of economic and political challenges.
“How long will this downturn in equity markets last? Given the generally healthy state of economies, corporate profitability and the jobs market in the US and most other major economies, it seems too early to be pessimistic. The overarching question remains the same: Where else would you invest?
Inflation the key focus for IAC
“As my IAC colleague Mark Nicholson will explain in his companion piece ‘Inflation, interest rates and bonds’, we see inflation as the key risk on which to focus.
“Equity markets are worried that the return of inflation may be sufficiently dramatic to shift the risk/return equation for equities enough to cause a major alignment of asset portfolios.
“We do not know the answer to this question, but the role of the IAC is not to try to front-run cyclical moves in markets – that is for the active asset managers.
“Our role is to consider whether longer-term shifts are occurring in the relationships between asset classes, and to review the risk/return modelling that examines the implications of such shifts. Only then do we make adjustments to the Six Park portfolios and, at present, we prefer to sit tight.
Diversification critical during volatile times
“During periods of uncertainty, the best investment policy is to be diversified, and that is what the Six Park portfolios provide.
“We do not see the bumper returns of 2021 being repeated in 2022, but we think the returns from global equity markets that all Six Park clients receive through their portfolios will still be attractive. And each portfolio has its range of diversifying assets (including cash, bonds, property and infrastructure) to provide the balance of risk appropriate to each Six Park client’s appetite.
“So, the range of challenges to markets around the globe suggests that the year ahead will be volatile. Do not be too concerned about this. Equity markets are generally more volatile than the relative calm we have witnessed over the last 12-18 months.
“Our advice, as always, is to stay invested for the long term, as moving in and out of the markets is a practice that even investment professionals get wrong more than they get right.
“The Six Park IAC will be continuously reviewing market conditions and your portfolios, and will make adjustments if we think they are necessary. The Six Park portfolios have returned 7.7% to 20.4% in the past 12 months, and 4.1% to 10.2% per annum over the last five years, and our aim is to continue to provide the high-quality, low-cost service we envisioned when Six Park was established.”
Learn more about Brian’s background, passions and reasons for founding Six Park in this video interview with our Head of Partnerships Ha-Dieu Ford.
Read Mark Nicholson’s thoughts on bonds, inflation and interest rates here.