Financial advisers and their clients should brace themselves for an elongated U-shaped recovery from recession and position themselves accordingly.
That is the consensus of a panel of portfolio managers and analysts put together by Money Management in Sydney and Melbourne with financial planners being advised to keep their clients patient, well-diversified and focused on the long game.
The panel was made up Magellan’s head of macro, Arvid Streimann, chief executive of Jamieson Coote Bonds, Charlie Jamieson, Fiducian’s head of investments, Conrad Burge and leading analyst and founder of van Eyk Research, Stephen van Eyk.
Asked how he would position allocations if he was still helping build approved product lists (APLs) van Eyk said he would probably be underweight shares, with some exposure to alternatives with some exposure to infrastructure funds.
What all the panellists agreed upon was that Australia and the world, in general, was in deep recession and highly reliant on the support of the central banks, with Jamieson stating that the markets had benefited from a liquidity-driven rebound after what had looked like a catastrophic situation in March.
“The problem is that the bazooka of stimulus has now been fired and as we look forward we’re going to see some of those disaster relief programs winding down,” he said noting that the problems had not actually gone away.
Jamieson said that, on this basis, there was likely more pain to come and that investors needed to understand that they had been through a “re-rally” driven by liquidity.
Magellan’s Streimann said that while there were a range of scenarios with respect to the shape of the market recovery, one of the concerns was that a V-shaped recovery was currently being priced into equity markets.
He said that, for its part, Magellan was more focused on either a U-shaped recovery or a prolonged and deep recession, with the outcome depending in large part on the policies applied by the central banks.
Fiducian’s Burge said the firm took a positive view of the market on the basis that investors in growth assets needed to be there for the longer-term, usually five years.
“We’re not looking at where markets are going to be in two months or three months,” he said. “We’re looking further afield.”
“We come through a difficult period and there are plenty of reasons to be negative about the outlook,” Burge said noting structural issues in the US, Australia and elsewhere. “There are lots of reasons to be negative but we think we’ve come through the worst of the virus and there is reason to be optimistic.”