August 2022 Market Update

By Gary Lucas

As the volatility in financial markets intensifies, we believe it's essential to increase our level of communication with you. During times like these, understanding more about how your portfolio is structured can help you feel more confident about weathering the storm. As always, we'll continue to be transparent about our views and will keep you updated on how we're managing the portfolios for you. 

In this update, we'll cover three main topics. The latest inflation figures, the improvement in financial markets in July and the most recent updates we've made to our portfolios. 

Australia released their inflation numbers last week, delivering an annual figure of 6.1%. While this is on the high side compared to recent performance, it’s still well below what we're seeing overseas.  

By the same token, the numbers is also smaller than many were forecasting. For this reason, there's now a feeling in the financial markets that the aggressive approach we've seen from the Reserve Bank may be curtailed a little. We'll still see rate increases, but there may be fewer than some feared. This is good news. 

You'll have heard that share markets had a rough ride in June. Still, they recovered well in July, illustrating just how challenging it can be to time the markets. When things look bad and feel like they could get worse, there can still be a recovery. As we've said in the past, when the recovery begins, it'll be when it's least expected. Research repeatedly shows that keeping focused on the big picture and remaining invested allows you to benefit from early improvements and enjoy long-term investing success. 

Last week, the US Federal Reserve announced a further interest rate increase of 0.75%. This latest rate hike takes their benchmark rate to a range of 2.25% to 2.50%. As mentioned earlier, while this number is high compared to recent history, it's really just getting back to normal or neutral levels. 

Surprisingly, the US S&P 500 responded to this rate hike by rising 2.62% on the same day. While this increase is somewhat illogical, the main reason for the positive response is that confidence is growing because substantial action is being taken to manage inflation.   

Despite continual rises in inflation and interest rate hikes, it was interesting to see the share markets lift during July. Whether this rally will continue remains uncertain, which is why we continue to position our funds in a more defensive position than usual. That said, we started to invest very small amounts of our cash reserves over the course of the month. Investing during or after bad periods in the stock market is all part of our disciplined approach to managing our portfolios. 

In addition, we added to our holdings in the Dynamic Portfolio by investing in the Munro Global Growth Fund and the Barwon Global Private Equity Fund. We have also re-introduced our holding in the JCB Global Bond Fund in the Diversified Portfolio because we believe now is a good time to gradually reinvest in bonds for potential additional returns and defensive protection. 

It is our aim to continue providing good protection against market falls, so we're carefully putting our cash holdings to work as opportunities present themselves.