April 2022 Market Update
By Gary Lucas
With so much going on in the financial markets, keeping you informed has never been more important. Changes are taking place every day. However, the main events currently affecting the market are as follows.
High inflation
Rising inflation is a negative point on its own for the economy and the financial markets.
Rising interest rates
The financial markets are already pushing up interest rates to relatively high levels. For example, the interest rate on Australian ten-year bonds is now at the highest level we’ve seen for four years. Central banks have also started to lift official rates globally.
The war in Ukraine
Aside from the tragic human aspect, commodities such as oil and wheat are rising in price, increasing inflation, and impacting interest rates.
The upcoming election
In Australia, we have an election coming up in May, so there will be talk of the impact of each major party’s policies on our economy. In addition, the other possible scenario is a hung parliament, which is a far greater risk from a financial point of view.
All of these influences will have an impact of varying degree and duration on the economy. However, increasing interest rates will continue to be the main issue.
How is Clearwater managing the current volatility?
Our main focus is on the medium to long-term and our performance objectives, which are based on five-year plus targets. In the shorter term, we aim to reduce volatility, particularly in the DMG Diversified Portfolio, by limiting the losses that occur when share markets fall.
To achieve this, our current approach is as follows:
DMG Diversified Portfolio
We have exited the Bennelong Long Short Fund, which served us well in past cycles but is now struggling, something we expect to continue in a higher interest rate environment.
Therefore, we have replaced this holding with three new funds.
1.The Palisade Impact Fund
This infrastructure fund invests in assets that target solutions to environmental and social challenges while delivering strong risk-adjusted returns. Assets include clean energy storage and distribution and the recycling and reuse of waste.
2. Barwon Disability Accommodation Fund
Barwon is a manager that we’re familiar and comfortable with. We’ve been successfully investing in their Healthcare Property Fund for some time. This new fund does simply as the name suggests – it provides practical and affordable housing for disabled people.
As well as being investments with the prospect of providing strong returns and good levels of stability, these two funds also meet the needs of our company and investors seeking ethical and responsible investments.
3. Perpetual Share-Plus Long-Short Fund
While sharing a similar name to the Bennelong fund, it has a different approach. The strategy of this fund involves investing in the Australian share market with a view to delivering less volatile returns.
Our view is that these funds will deliver above-target returns, simultaneously reducing the volatility we’re currently seeing. These changes will also lead to lower fees.
Clearwater Dynamic Portfolio
The CDP has also exited the Bennelong Long Short Fund. The proceeds will be allocated across our existing holdings. In addition, we will continue to further add to these when markets fall.
As always, our investment committees meet regularly to discuss the financial markets, making any changes that we believe will improve the performance of our portfolios.