1 00:00:05,640 --> 00:00:08,240 Speaker 1: Welcome to Fear and Greed Business Interview. I'm Sean Almer. 2 00:00:08,360 --> 00:00:10,720 Speaker 1: One of the biggest questions for investors as they head 3 00:00:10,760 --> 00:00:14,680 Speaker 1: into twenty twenty five at any point is asset allocation. 4 00:00:15,080 --> 00:00:17,960 Speaker 1: How much of your portfolio should be in local stocks, 5 00:00:17,960 --> 00:00:20,600 Speaker 1: what about international stocks? What about bonds? What about cash? 6 00:00:20,960 --> 00:00:23,840 Speaker 1: As always, this is general information only, and you should 7 00:00:23,840 --> 00:00:27,720 Speaker 1: always seek independent advice before making investment decisions. Matthew Kidman 8 00:00:27,960 --> 00:00:31,320 Speaker 1: is the principal at Centennial Asset Management, a regular here 9 00:00:31,360 --> 00:00:33,840 Speaker 1: at Fear and Greed. Matthew, welcome back to the show. 10 00:00:34,320 --> 00:00:35,640 Speaker 2: Thanks Sean, thanks for having me. 11 00:00:36,120 --> 00:00:38,640 Speaker 1: People like me forget about asset allocation, but if you 12 00:00:38,680 --> 00:00:41,159 Speaker 1: actually talk to sensible investors, they all say it's as 13 00:00:41,200 --> 00:00:42,680 Speaker 1: important as stock picking. 14 00:00:43,159 --> 00:00:45,760 Speaker 2: I think that's right. I think you want a spread 15 00:00:45,840 --> 00:00:49,159 Speaker 2: of assets depending on your age and your situation, how 16 00:00:49,240 --> 00:00:53,159 Speaker 2: much capital you've got to invest. But I think it's 17 00:00:53,240 --> 00:00:57,240 Speaker 2: right because different asset classes deliver different returns. I'm one 18 00:00:57,320 --> 00:00:59,680 Speaker 2: who's always been in the equity market, so I'm biased, 19 00:01:00,280 --> 00:01:02,800 Speaker 2: But I would have thought you always hold a bit 20 00:01:02,840 --> 00:01:05,959 Speaker 2: of cash. It can save you in a bad spot. 21 00:01:06,040 --> 00:01:08,399 Speaker 2: I wouldn't be too geared you do anything, maybe except 22 00:01:08,440 --> 00:01:11,920 Speaker 2: your family home, which has obviously got tax benefits, and 23 00:01:12,040 --> 00:01:15,679 Speaker 2: of course you want constant income, so that can be 24 00:01:15,760 --> 00:01:20,800 Speaker 2: delivered through fixed interest or these days there's also private debt, 25 00:01:20,840 --> 00:01:22,440 Speaker 2: which I think we can come to in a minute. 26 00:01:22,480 --> 00:01:25,160 Speaker 2: But I think a balance portfolio. But I think what 27 00:01:25,240 --> 00:01:27,839 Speaker 2: we're doing here is what looks out for twenty twenty 28 00:01:27,840 --> 00:01:30,679 Speaker 2: five and where we tilt that balance so you get 29 00:01:30,680 --> 00:01:32,200 Speaker 2: a better bang for your buck over the year. 30 00:01:32,760 --> 00:01:35,640 Speaker 1: Okay, So let's say we have an asset allocation. We 31 00:01:35,680 --> 00:01:38,679 Speaker 1: have bonds fixed slash fixed incomes, so maybe credit in there. 32 00:01:38,880 --> 00:01:42,000 Speaker 1: We have equities local, we have equities international, and we 33 00:01:42,040 --> 00:01:45,240 Speaker 1: have alternatives big you know, maybe that's infrastructure, maybe that's 34 00:01:45,280 --> 00:01:49,960 Speaker 1: private equity, et cetera. So they're are our buckets? Where 35 00:01:49,960 --> 00:01:53,120 Speaker 1: do you think you have? And sorry, the other part 36 00:01:53,120 --> 00:01:54,760 Speaker 1: to that is, depending where you are inn your lifestyle, 37 00:01:54,760 --> 00:01:57,280 Speaker 1: how much in each you should be. But take that 38 00:01:57,320 --> 00:01:59,600 Speaker 1: all as given, where do you think you should be 39 00:01:59,640 --> 00:02:02,560 Speaker 1: tilted heading into the next twelve months or so? 40 00:02:03,160 --> 00:02:06,320 Speaker 2: Yeah, that's that's that's exactly the right question. So where 41 00:02:06,400 --> 00:02:08,920 Speaker 2: I would try and be is where we're going into 42 00:02:10,120 --> 00:02:12,880 Speaker 2: a higher growth phase because rates, even though in Australia 43 00:02:13,000 --> 00:02:15,799 Speaker 2: haven't come down, they have around the world, not as 44 00:02:15,840 --> 00:02:19,600 Speaker 2: precipitously as what people may be thought, but that's been 45 00:02:19,919 --> 00:02:22,760 Speaker 2: that's been supplemented by higher economic growth, so you've got 46 00:02:22,760 --> 00:02:25,880 Speaker 2: this nice balance. So yeah, I think you've still got 47 00:02:25,880 --> 00:02:30,440 Speaker 2: to tilt towards growth assets. And obviously where you've had 48 00:02:30,440 --> 00:02:33,519 Speaker 2: to be the last few years is in international equities, 49 00:02:33,560 --> 00:02:38,399 Speaker 2: but fundamentally American US equities, that tech end of town Nasdaq, 50 00:02:38,440 --> 00:02:41,120 Speaker 2: but even more broadly, the US has performed really well. 51 00:02:41,200 --> 00:02:43,359 Speaker 2: As we know, the Feds come off, it's done three 52 00:02:43,600 --> 00:02:46,920 Speaker 2: straight cuts or about to do another one, and the 53 00:02:46,960 --> 00:02:51,520 Speaker 2: growth situation is getting stronger. We think, let's see new administration, 54 00:02:52,040 --> 00:02:54,800 Speaker 2: but their promises we're going to have a lot higher growth, 55 00:02:54,840 --> 00:02:57,680 Speaker 2: tax cuts, less red tape. So I think you can 56 00:02:57,720 --> 00:03:01,920 Speaker 2: still skew towards I would general indexes maybe an S 57 00:03:01,960 --> 00:03:04,679 Speaker 2: and P five hundred as opposed to the Nasdaq, which 58 00:03:04,680 --> 00:03:06,800 Speaker 2: has been the big winner, because I think they're going 59 00:03:06,840 --> 00:03:10,200 Speaker 2: into a more cyclical strand of their rebound away from 60 00:03:10,200 --> 00:03:13,000 Speaker 2: the structural growth. So maybe more of a broad index 61 00:03:13,080 --> 00:03:16,519 Speaker 2: that captures that cyclical component. So I would tilt a 62 00:03:16,520 --> 00:03:18,280 Speaker 2: bit high depending on what you've got now, I tilt 63 00:03:18,320 --> 00:03:22,080 Speaker 2: towards that in terms of Ossie equity has been a 64 00:03:22,120 --> 00:03:25,480 Speaker 2: lot more disappointing, and I think they will continue to 65 00:03:25,560 --> 00:03:28,240 Speaker 2: run behind the US, but I think it will still 66 00:03:28,280 --> 00:03:31,399 Speaker 2: be quite a good equity market. And as we said, 67 00:03:31,400 --> 00:03:34,840 Speaker 2: we've talked a lot about in previous chat, Sean, know 68 00:03:35,000 --> 00:03:37,200 Speaker 2: what are the small caps doing? Because that's where I'm at. 69 00:03:37,560 --> 00:03:40,320 Speaker 2: I think if we do get maybe two inch straight 70 00:03:40,360 --> 00:03:43,480 Speaker 2: cuts during the year, that cyclical component will kick in, 71 00:03:43,520 --> 00:03:46,040 Speaker 2: which is better for small caps, and so I think 72 00:03:46,080 --> 00:03:47,560 Speaker 2: you can have a till at that and I would 73 00:03:47,600 --> 00:03:51,040 Speaker 2: tilt as he goes on towards the cyclical component. Probably 74 00:03:51,040 --> 00:03:54,240 Speaker 2: an index. Once again, we haven't got a heavy tech component, 75 00:03:54,480 --> 00:03:57,760 Speaker 2: so we can probably buy a broad index. I think 76 00:03:57,800 --> 00:04:01,280 Speaker 2: we fix interest that'll be an interesting one because we've 77 00:04:01,320 --> 00:04:06,960 Speaker 2: seen fixed interests around the world obviously tested or led 78 00:04:07,040 --> 00:04:11,280 Speaker 2: by government bonds and everyone else follows, and we thought 79 00:04:11,280 --> 00:04:13,080 Speaker 2: it was coming down, down, down, And since we've had 80 00:04:13,120 --> 00:04:15,360 Speaker 2: that first a fishal interest rate cut in the US, 81 00:04:15,600 --> 00:04:19,560 Speaker 2: yields have gone back up, which has surprised most players. 82 00:04:19,600 --> 00:04:23,120 Speaker 2: But I think now it's going to hang around the 83 00:04:23,240 --> 00:04:27,080 Speaker 2: US ten yure bond, which sets most other valuations around 84 00:04:27,120 --> 00:04:30,120 Speaker 2: the world, will sit that four point three maybe up 85 00:04:30,160 --> 00:04:33,200 Speaker 2: to four point eight. We can grow pretty quickly, so 86 00:04:33,440 --> 00:04:35,200 Speaker 2: I wouldn't be too scared because I don't think you're 87 00:04:35,200 --> 00:04:38,680 Speaker 2: going to get a problem. As we know bonds in 88 00:04:38,800 --> 00:04:41,320 Speaker 2: versus price to yield, so what you don't want, you 89 00:04:41,320 --> 00:04:43,000 Speaker 2: want to do yield, which you don't want your price 90 00:04:43,040 --> 00:04:46,040 Speaker 2: to collapse because your valuation just appears. I think it's 91 00:04:46,040 --> 00:04:47,520 Speaker 2: going to be a bit steadier this year. I think 92 00:04:47,520 --> 00:04:49,200 Speaker 2: it will stay in those fours, not going to come down. 93 00:04:49,240 --> 00:04:50,880 Speaker 2: That's a bit of a worry in the sense that 94 00:04:50,920 --> 00:04:52,320 Speaker 2: we would like them to come down, but I think 95 00:04:52,360 --> 00:04:55,240 Speaker 2: it's going to stay there steady. Probably mark up weight 96 00:04:55,320 --> 00:04:58,159 Speaker 2: on that cash. I think you can go underweight a 97 00:04:58,160 --> 00:05:00,520 Speaker 2: little bit this year now and a few time. I 98 00:05:00,520 --> 00:05:03,960 Speaker 2: will change my mind, especially at markets rally, because you 99 00:05:04,000 --> 00:05:06,160 Speaker 2: don't want to be underway cash then. But I think 100 00:05:06,200 --> 00:05:08,360 Speaker 2: you could probably have your normal cash position because we've 101 00:05:08,360 --> 00:05:10,320 Speaker 2: got a couple of good years ahead of us. Property 102 00:05:10,360 --> 00:05:12,960 Speaker 2: is an interesting one. I'm not quite sure. It depends. 103 00:05:13,120 --> 00:05:15,039 Speaker 2: Probably is a bit more nuanced and there's a lot 104 00:05:15,080 --> 00:05:19,919 Speaker 2: of divisions there, and i'd be yeah, I'd probably go underweight. 105 00:05:20,000 --> 00:05:24,240 Speaker 2: Property commercial struggling since COVID residential, there's a lot of 106 00:05:24,320 --> 00:05:27,680 Speaker 2: roadblocks in that, and industrial has just had such a 107 00:05:27,680 --> 00:05:30,400 Speaker 2: boom market, so maybe a little bit underway. And the 108 00:05:30,440 --> 00:05:32,880 Speaker 2: other one we talked about, which a lot of financial 109 00:05:32,920 --> 00:05:36,239 Speaker 2: planners and their clients have got into, has been opened 110 00:05:36,320 --> 00:05:40,040 Speaker 2: up is private credit or private debt, and that's opened 111 00:05:40,120 --> 00:05:42,440 Speaker 2: up to funds that have gone into that area because 112 00:05:42,480 --> 00:05:45,359 Speaker 2: our major banks, it's happened around the world, have moved 113 00:05:45,480 --> 00:05:48,760 Speaker 2: out of this area, creating a void, and so you 114 00:05:48,760 --> 00:05:51,560 Speaker 2: can invest in funds there. I don't think you want 115 00:05:51,560 --> 00:05:54,279 Speaker 2: to be overweight there. That has been rushed that market, 116 00:05:54,839 --> 00:05:57,159 Speaker 2: and there's a lot of capital flying in, and I 117 00:05:57,200 --> 00:05:59,520 Speaker 2: think over the next couple of years if that continues, 118 00:06:00,000 --> 00:06:02,719 Speaker 2: I'm not sure there's the asset or quality of assets 119 00:06:02,720 --> 00:06:06,120 Speaker 2: to back those that money going chasing it for the 120 00:06:06,200 --> 00:06:08,880 Speaker 2: yield that you're getting. So you don't want assets going 121 00:06:08,920 --> 00:06:12,320 Speaker 2: bad when you're lending that business money through a fund, 122 00:06:12,360 --> 00:06:14,760 Speaker 2: because you can't actually see the business the fund's doing it. 123 00:06:14,880 --> 00:06:17,400 Speaker 2: All you see is the fun tells you it delivers nine, 124 00:06:17,480 --> 00:06:20,320 Speaker 2: ten eleven percent. You looks really attractive, but you can't 125 00:06:20,320 --> 00:06:23,000 Speaker 2: see what's behind it. So I would start to chilt 126 00:06:23,040 --> 00:06:24,840 Speaker 2: a way from that. It's been a good spot for 127 00:06:24,920 --> 00:06:27,680 Speaker 2: everyone because there hasn't been any blocks. But as we know, 128 00:06:28,120 --> 00:06:30,320 Speaker 2: debt can get you into trouble if you're on the 129 00:06:30,360 --> 00:06:32,960 Speaker 2: wrong asset. So that's how I would see your portfolio 130 00:06:33,040 --> 00:06:33,760 Speaker 2: this year. 131 00:06:33,680 --> 00:06:36,600 Speaker 1: A world win tour of asset allocation. Matthew, thank you 132 00:06:36,720 --> 00:06:37,480 Speaker 1: very much today. 133 00:06:37,720 --> 00:06:38,320 Speaker 2: Thank you, Sean. 134 00:06:38,520 --> 00:06:41,359 Speaker 1: That was Matthew Kidman from Centennial Asset Management. This is 135 00:06:41,360 --> 00:06:43,720 Speaker 1: the Fear and Greed Business Interview. Remember to get your 136 00:06:43,760 --> 00:06:48,360 Speaker 1: own independent advice before making investment decisions. Join us every 137 00:06:48,400 --> 00:06:50,599 Speaker 1: morning for the full episode of Fear and Greed. Business 138 00:06:50,800 --> 00:06:53,320 Speaker 1: is people who make their own decisions. I'm Sean Elmer. 139 00:06:53,839 --> 00:06:54,440 Speaker 1: Enjoy your name.