Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Broker adds alternatives to model portfolio, remains risk-on
Morgans has released its Australian asset allocation strategy update for 2022. The wealth manager has retained its Overweight position to risk assets and Underweight traditional income assets. There has however been one big addition: the broker has included Alternatives to its portfolios.
Alternatives will add value and diversification to portfolios, “with global short rates edging higher and conditions in place for a return of volatility, we see the need have some dry powder,” says Morgans.
Opportunities exist in companies that are rapidly adapting their business models for net-zero.
Morgans says, “Climate risk is investment risk, and the narrowing window for governments to reach net-zero goals means that investors need to start adapting their portfolios. The green transition comes with costs, yet the economic outlook is unambiguously brighter than a scenario of no action.
Though risks around a disorderly transition are high – particularly if execution fails to match governments’ ambitions to cut emissions. Policy remains the main tool. Some carbon-heavy companies already are changing their business models, creating potential investment opportunities.”
The broker touches on sustainability-driven repricing as having just begun. Clients are actively investing in ESG products and the broker is seeing a massive increase in fund flows. The end result is that commodities such as copper and lithium will likely see increased demand from the drive to net-zero. Morgans says, “It’s important to distinguish between near-term drivers of commodities prices – the economic restart – and the long-term transition.”
In summary, Morgans does say that the upside potential in risk assets has narrowed but even still it is holding tight on its tactical pro-risk stance.
“Rising bond yields and elevated valuations will limit the probability of strong capital returns in 2022, but we stay overweight equities as we expect the tailwinds from the economic restart to overshadow the near-term risks. We tilt toward cyclicality and maintain a bias for quality. We like having some inflation protection with rising prices unlikely to unwind on strong demand dynamics and supply chain constraints. We believe non-traditional return streams (Alternatives), including private credit/equity, unlisted and real assets have the potential to add value and diversification.”
