Webinars

hi everyone welcome to the quarterly update for Q4 2024 I'm about to talk about the macro environment what we're looking forwards for 2025 give you a portfolio update as well as performance update as well we'll cover the manage portfolios from a core manage portfolio perspective we also talk about the sustainable manage portfolios later as well without further Ado I will share my screen so let's cover what happened during the quarter itself these are some of the asset class performances for a broad set of assets such as equities bonds and credit on the left hand side here you can see that most Equity markets were fairly neutral not much of a uh a continuation in the rally but when you look at International equities unhedged we did see a very strong performance so that 10.9% that you see from that second bar it really relates to a weaker Aussie dollar currency when we invest in global equities we have the choice of receiving the foreign currency exposure or whether to hedge that foreign currency exposure for the most part the portfolios are unhedged when it comes to Global equities so that did benefit performance for the manag portfolios which I'll talk about shortly but by far the weakness in the Aussie dollar that you see on the right hand side the most furthest right bar the Aussie dollar dropping 10.5% did generate stronger performance for Global Equity investors if they took their currency unhedged when it came to the other areas and sectors Aussie equities was down 80 basis points em equities down 4. 4% and aats and gats were down 6 and 7% respectively so what actually happened so during the quarter as opposed to the quarter before we saw Bon yields rise Bon yields Rose due to a more resilient economy they Rose due to concerns around Trump's policies around more fiscal stimulus and so that did Drive bond yields higher and led too some weakness in some Bond sensitive areas such as roots as well it's good to see that credit did Fair uh much better than uh the other sectors and so Credit in Orange such as Emerging Market debt local currency up 4% Global floating rate credit up 2.3% uh as a whole Bonds were fairly muted but International bonds did Str from that backup in yields let's look forward my colleagues uh Alex kley and our Global colleagues as well have given an update on the Global Market Outlook but we've we've put together a quick summary for you when it comes to 2025 we expect a soft Landing in the US economy there's been a rebalancing in the labor market that has been very beneficial for the economy there's no signs of a major layoff cycle for those who can remember back in q1 Q3 sorry in 2024 there were some concerns about a recession and we did see the recession risk rise but for now given everything that we see in terms of the data points 2025 is looking more modest in terms of some positive growth in terms of uh us rate Cuts Contin continue to expect some rate cuts for the year ahead but there are still some areas where we are seeing some higher than expected inflation so this will be more of a wait and see but we do predict some rate Cuts as a whole for the RBA in particular we are expecting rate Cuts as well as inflation has dropped from its stickier levels that we saw in 2023 and 2024 no doubt there is a lot of uncertainty around uh the US Administration when it comes to some policies uh that we've seen which since deregulation we expect some more fiscal stimulus and more uh changes ahead when it comes to tariffs immigration taxes and deregulation I think I read one of the saleside reports they talk about Trump being an alchemist trying to balance the macro environment with all the different policies that he has and for sure that would Breathe a level of uncertainty into markets and we've already seen that in the bond markets as a whole we're also seeing new thematics arise even within AI where deep seek and announ and announced a Chinese competitor to open AI was announced in January of 2025 these are things that put a doubt in in the minds of investors when it comes to US tech no doubt that continues to be a quality uh area where investors continue to seek their Investments however for once there is a fundamental risk so those are things that investors will have to navigate when it comes to going risk on or riskof that's a uh Team that I am part of and Alex as well the views to stay neutral when it comes to overall asset allocation and I'll talk about the reasons for that so let's T touch on bond yields so this is a uh 12 month chart of where bond yields us 10year bond yields have been uh in 2024 and where they've ended and and continued to rise in 2025 as mentioned before in Q3 it looked like inflation was subdued it looked like there was a little bit recessionary risk especially early in Q3 so bond yields fell there was a strong conviction that the Federal Reserve would cut rates uh but ever since the turn of the quarter so beginning of October Bon yields have risen quite rapidly that's com combination of the better economy some concerns around Trump's policies and the inflation Outlook changing as well as some Federal Reserve members uh talking about being more patient when it comes to rate cuts and so this is what we see here in bun yields the green line represents an area where we'd be adding more to bonds so um as a precursor we've started to add more into Bonds in late 2024 early 2025 but where we really are very interested to add more bonds is when bond yields rise to that say 5% Mark or 4.9% Mark here that's critical we think bond yields are going to drive a lot of different asset classes be it currencies equities property infrastructure uh bun yields and cash rates uh do tend to drive sentiment when it comes to asset class asset allocation before I jump into uh the manag portfolios themselves I wanted to show you our contrarian indicator this is a very powerful tool to gauge what the sentiment like within Equity markets so when there's Panic that's a time when we want to be adding to equities and credit when when there's euphor that's a time where we want to sit back and really make sure that our positioning is uh is is well well positioned just in case there is a pullback uh the boring but simple message is that what dead set neutral right now uh there's no Panic and there's no Euphoria and despite trading their all-time highs there's a relatively balanced Market what does this mean for uh for investors uh or for for us in our manag portfolios we're keeping a neutral asset allocation without worrying too much about our Equity risk in the medium term of course in the short term term there would be unsurprisingly due to uncertainty some pullbacks uh would probably use those uh to to add some equities of credit but for the most part uh a a more medium-term Outlook of rising equities is one in which we're expecting so let's jump into the manage accounts so looking at the manage accounts here you have the structure of the balance manage portfolio so this is Russell Investments balance manage portfolio run to a a long-term Target of 70% growth assets and it's made up of direct shares the dynamic real return fund ETFs and index funds and I'll dive into these in Greater detail in terms of overall asset allocation the dynamic real return fund gives us the ability to to implement our best ideas as well as efficiently move the portfolios so when I'm running mag so that I'm the portfolio manager on the dynamic R return fund what you saw before in the middle uh and on the left hand side here that's again showing you the asset allocation through time so when I'm moving from say equities to bonds that's happening concurrently in the balance manage portfolio it has been intentional over the last 12 months as you can see here or even 18 months to hold our asset allocation relatively neutral so as the market has rallied and we've seen a very strong rally in 2024 we've been rebalancing the portfolios back to neutral we think this is a prudent way of playing what is a pretty tricky environment when it comes to high expectations a very highly concentrated Market as well as uh the uncertainty around not only Trump but interest rate policy and we think that being able to generate performance as as I'll touch on before being able to outperform peers uh despite selling into some rallies has been a good outcome and a prudent way of risk managing ultimately we are managing the RIS risk uh and as I mentioned before if there's a deeper Equity selloff even if there's a shorter term selloff we'd be looking to add equities and credit so this is a good way to look at asset allocation when you look at the balance manage portfolio on the right hand side here so what's been positive what's been driving positive returns it's uh very pleasing to to talk to you again about our direct Australian shares remember we had three components direct Australian shares Dynamic real return as well as ETF index funds but for uh another quarter uh Q4 we've seen the direct shares portfolio outperform the index by roughly 1% bringing the one-year out performance close to 4% and also a healthy three-year performance and so what's been driving that it's uh it's quite interesting it continues to be similar names be it predus JB highi maybe QBE is a more recent winner uh but you can see there with the green ticks those are contributors to active returns and those have been positive as well Direction portfolio continues to do well over the medium term as I mentioned before um we we have three components but what I have done uh more recently is to reduce some of the direct share weight and I think that's important to take profits to manage our risk you know these this has been an area that has been doing very well you can look at most of those names there and they've done very very well and I think it's prudent just to be trimming some of those winners I already talked about trimming asset allocation when markets are running hot and there a similar philosophy that we take when it comes to direct shares so trimming some of these as well um makes sense to me and putting them towards other active managers or even passive in terms of a deeper dive so we talked about Australian direct shares that's a big chunk of the Australian Equity allocation but when it comes to Global equities we also have active managers that we are invested in through the dynamic return fund about 80% of the strategies here that you see on a dynamic real return fund uh are not accessible to retail investors so be it numeric Sanders pinestone these are not managers that we typically see on a platform and so as you can see here if you wanted to talk about what what are Holdings you can see some of the top five names here what's interesting here Taiwan semiconductor screens as a fairly positive position across multiple investors and so active managers believe in the uh manufacturing of semiconductors through that AI lens and so whilst we may be slightly underweight Nvidia tsmc has been a good error for us we're also seeing a turnaround in Chinese Tech be it Alibaba as an example or even 10 cent and so these are some of the areas that our uh that our active managers have been adding to but again if you want more information please reach out to us and we can provide that information to you now let's talk about performance so for the uh 3 months that ended um that ended 31st of December the balance Russell Investments managed portfolio uh provided a return of roughly 1 and a half% as you can see in the left hand side and a second group of charts there this compares to some other competitors that uh we beat the meeting but this compares to some other competitors the in the top quartile that are more passively invested so that Magnificent Seven that Invidia rally that Tesla Tesla did very well as Elon Musk um no doubt everyone's been following what Elon Musk has been doing in that Trump Administration but Tesla itself has has performed very strongly in the quarter and so those passive investors tend to be doing pretty well but of the active investors uh We've definitely been able to um uh put a put a pretty good score here on a three-month performance and that's very similar on the one year you can see us near the top quarter and very pleased with that performance the direct shares portfolio definitely helping us uh with those names that I mentioned before um asset allocation keeping that pretty tight and and and close to neutral and that's been intentional we're always looking for opportunities so we've recently been adding duration we've uh we're looking to add Aussie dollar hedging as well those are areas where we believe in in a unsustainable EX that's the words we use unsustainable extreme what is unsustainable and if we can add to those errors we can add value for your investors over the five years it gets better in terms of Performance top quartal um for most of the manag portfolios that you see here and very pleased with uh with that fiveyear performance you know if you want to look for a tougher an any tougher environment outside of GFC it's that covid-19 high inflation uh environment uh uncertainty around interest rates a lot of geopolitical uncertainty um that has been a tough environment for investors and we're very pleased with performance as a whole so now let's talk about gear 120 this is strategy that we onboarded in the middle of 2022 I don't think we could have picked a better time to be starting that as there was a lot of uh there was a big Equity pull back in 2022 due to higher interest rates but regardless of that the gear 120 gives geared exposure um so it does seek to achieve about 120% Equity exposure and so the asset allocation theory behind this is that we can achieve similar levels of volatility to Aussie equities everyone knows Aussie equities can be volatile but if we can achieve similar level of Aussie Equity volatility with a higher level of equities through the magic of diversification so investing in global equities listed real assets some uh curreny unhedged exposures as well then we can provide a higher level of equities with a similar level of volatility and so how do we achieve this we achieve this through internally geared active managers we think it's important for active managers as a whole to be managing the gearing to be able to uh to avoid margin calls when it comes to uh to to uh you know normal um investing when it through direct stocks so these manag manage managers are actively looking for not only the best stocks through that process but also managing the gearing as well as you can see for the performance in the table on the right hand side uh 3 months was up 2.2% and the 12 months was up nearly 20% a very good performance for that one-ear period in terms of the active managers themselves you can see the positions some of the positions as well as the performance for the quarter in terms of pure relative performance we put them up here and I'm very again happy to to say that the geared 120 and high grow continue to be performing strongly over the one year as well as the 3 months and uh we do believe uh we have some of the top performing or Equity type strategies here and um yeah very happy to talk to you about this as we are across most of the uh major Platforms in the manag portfolio space so that's a GE 120 in terms of the sustainable manage portfolio again this is something that we launched around that 2022 period this is using the same philosophy and structure of direct shares active managers as well as index type strategies here when we build a direct shares portfolio we start with um not only uh we reconstruct the whole thing we don't go and take the Core Series and just apply exclusions we we start from the fundamental building block of exclusions and then we build the direct shares again and I failed to mention that we're using a factor portfolio so we like stocks have momentum value quality growth and low v um and so we rank those stocks in terms of active managers most of these managers have a sustainability objective and whether that can be alignment with uh United Nations SG uh goals or whether it's lower carbon emissions those are things that they that uh these active managers look at and we believe they can outperform the broader Benchmark as well so in terms of direct shares portfolio we did see a little bit of underperformance in the direct shares portfolio but pretty close to the Benchmark as a whole over the one year we've seen outperformance and over the two year period we're seen out performance as well um some names that will be familiar to you Goodman group uh James Hardy in there as well um Etc these are some of the names that we hold in the portfolio in terms of active managers um it was a pretty tough environment for active management as you can imagine if president Trump wins the election it's going to be a pretty tough short-term environment for some of the Renewables for some of the areas uh that are looking at lower carbon or the environment as a whole and so we did see that play out and some of these active managers did underperform the good news is that we've taken action to avoid those types of uh volatile pullbacks and so for those who can remember uh we did sell down some of our global Equity active manager uh positions in impacts as well as morova and we did put in a multi-manager diversified portfolio called the Russell sustainable Global opportunities ETF um and so with with that we've been able to avoid that big pullback in uh in in active stock selection they did still underperform as a weighted average but it wasn't as drastic as had we had kept the previous lineup and so timing was was was really good and we are we really do believe in a diversified set of active managers as well as asset allocation so when it comes to Performance as I mentioned before pretty tough quarter only up 7% but when you look at the one year continue to uh outperform the median continue to really U make sure that our position is uh is suitable uh from a sustainable perspective but also from a performance perspective and so the sustainable manag portfolio as a whole similar for philosophy similar asset allocation to the manage portfolios I talked about before but different active management as a whole uh due to the sustainability Focus but we're definitely pleased with that one-year uh performance as well so thank you very much uh for uh for joining us on the quarterly fund review um manag portfolio review if you have any questions please reach out to any of these regional managers head of distribution head of key accounts and with love to be engaged with you uh and seek your feedback as well so thank you very much and appreciate your time