Global markets traded in a small range and were generally higher overnight. Given the strong rally in markets post the US Presidential election, the question is what should investors do now?
Bill Gross, former Head of the world’s largest Bond Manager Pimco, has recently likened being short (betting against the recent bull market of late – i.e. that markets will fall) as being very difficult, like “stepping in front of a moving freight train”.
We tend to agree with this analogy, as while there are clearly risks in global markets, sentiment and economic data have improved, which has seen a strong surge in share markets. In saying that, we would not be surprised to see some short-term consolidation in markets from current levels. As we have discussed in the past this could likely stem from US politics, particularly given the lack of detail around the Trump administrations plans, some disappointment in the short term is certainly possible.
Another risk which we discussed yesterday is the US Fed. This week all eyes will be on the US Federal Reserve, which is set to make an interest rate decision Thursday morning (AU/NZ time) and a particularly hawkish Fed could become a catalyst for an equity market correction. We will be watching developments closely.
In saying that, we do not believe a healthy correction is cause for concern. Taking a bigger picture view, once again we continue to recommend investors hold a “normal” allocation to stocks, although we are very selective in what we own and would be hesitant in broadly buying stocks at the current juncture.
Australia & New Zealand Model Portfolio Update
The Australian and NZ Model portfolios lagged the broader market in February, up 0.1% and 1.5% respectively. To date the Australian Model portfolio is up +19.2% (vs ASX 200 +9.7%) and the NZ Model portfolio is up +38.3% (versus NZX 50 +26.7%) since September 2015.
The major drag on performance in Australia was Ardent Leisure (AAD.AX), and we have recently updated our views on AAD. At the same time returns were boosted by Crown Resorts (CWN.AX) and Costa Group (CGC.AX).
In NZ, Metro Performance Glass (MPG.NZ) dragged the portfolio lower, and we have also updated our views on MPG. At the same time lifting overall performance were Metlifecare (MET.NZ) and Air NZ (AIR.NZ) which rallied on the back of solid profit results.
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