InvestSMART Diversified Income Portfolio Update - December 2018
The InvestSMART Diversified Income Portfolio, although ‘defensive’ in nature, was still affected by the correction all major equity markets experienced in the final quarter of 2018. The Vanguard MSCI Index International Shares ETF (VGS) was the largest detractor, detracting -1.42% from the performance of the fund as international markets experienced their worst quarter’s trading in ten years in some instances. The outlook for international equities remains clouded as we travel through the early stages of 2019. The US-China trade war is likely to roll on, Brexit negotiations remain in a stalemate and European growth is stuttering.
The iShares Core S&P/ASX 200 (IOZ) detracted -1.11% over the quarter as Australian equities were impacted by the global sell-off as well as the Banking Royal Commission. This continued to place ‘regulation risk’ on the Financial sector; a sector that makes up over 40% of the ASX 200. This quarter the Australian market will see H1FY19 reporting season. We will keep a keen eye on those firms with Chinese exposure as international and domestic firms are suggesting Chinese demand slipped in the final quarter of calendar year 2018 and this could hurt returns.
The risk events in the ‘Growth’ side of the portfolio were countered by a flight to the defensive side in the quarter. The iShares Core Composite Bond ETF (IAF) attributed 0.41% while the Vanguard Global Aggregate Bond Index (Hedge) ETF (VBND) added 0.15% in the final quarter as both the domestic and international bonds markets saw solid inflows. The dialling back of ‘risk exposure’ by investors is likely to continue in the interim and will be supportive of defensive assets.
With the US and Australian earnings seasons due in first quarter of 2019, the news from Apple that Chinese demand has become an issue is likely to filter into other China-facing earnings. This presents potential for further downside risk on the growth side of the portfolio. This suggests the defensive side of the portfolio is likely to contribute more to the portfolio over this period as investors look to protect wealth. With a 66% weighting to defensive assets, the Diversified Income Portfolio should navigate the current period in a solid fashion.
To see more information on our Diversified Income Portfolio, click here.
Frequently Asked Questions about this Article…
The InvestSMART Diversified Income Portfolio is a defensive investment strategy designed to protect wealth by focusing on a mix of defensive and growth assets. It aims to provide a stable income stream while minimizing risk, especially during volatile market conditions.
In the final quarter of 2018, the InvestSMART Diversified Income Portfolio was affected by the global equity market correction. The Vanguard MSCI Index International Shares ETF (VGS) was the largest detractor, impacting the portfolio's performance by -1.42%.
The underperformance was mainly due to the global equity market correction, the US-China trade war, Brexit negotiations, and stuttering European growth. Additionally, the Australian market was impacted by the Banking Royal Commission and regulation risks in the Financial sector.
Defensive assets performed well, with the iShares Core Composite Bond ETF (IAF) contributing 0.41% and the Vanguard Global Aggregate Bond Index (Hedge) ETF (VBND) adding 0.15% to the portfolio in the final quarter of 2018. This was due to solid inflows into domestic and international bond markets.
The outlook for international equities in early 2019 remains uncertain due to ongoing issues like the US-China trade war, Brexit negotiations, and slow European growth. These factors contribute to a clouded forecast for international markets.
Chinese demand, which showed signs of slipping in late 2018, could negatively impact firms with significant exposure to China. This presents potential downside risk for the growth side of the portfolio, particularly during the US and Australian earnings seasons in early 2019.
With a 66% weighting to defensive assets, the portfolio is positioned to navigate volatile market conditions effectively. As investors seek to protect wealth amid uncertainties, the defensive side is likely to play a more significant role in contributing to the portfolio's performance.
During the H1FY19 reporting season, investors should pay attention to firms with Chinese exposure, as reduced Chinese demand could impact returns. Additionally, the ongoing regulation risks in the Financial sector may continue to influence the Australian market.
Call 1300 880 160
Start a chat
Schedule a call
