BetaShares chief economist reckons RBA will cut interest rates by 60bp this year, more than market expectations
\nETF provider say investors should build an \u201call-weather\u201d portfolio likely to withstand potential economic challenges
\nStockspot recommends preparation rather than prediction with a diverse mix of low-cost index funds for the long term<\/p>\n
Facing significant inflation, rising interest rates, concerns about potential recessions and multiple bank collapses, global stock markets largely succeeded in overcoming these challenges in 2023.<\/p>\n
The majority of key worldwide stock indices saw returns in the double digits, with the NASDAQ 100 notably surging by ~44%, serving as a testament to the market\u2019s ability to defy expectations.<\/p>\n
Although the economic and market landscape seems more favourable now compared to the same period last year, various risks and uncertainties remain.<\/p>\n
As such some of Australia\u2019s major ETF providers reckon adopting a measured and balanced approach may be a wise course of action for 2024.<\/p>\n
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Betashares chief economist David Bassanese<\/a> reckons the Reserve Bank of Australia will cut interest rates by 60 basis points this year, more than the market is expecting.<\/p>\n \u201cA lower-than-expected inflation path and increase in unemployment will allow the RBA to cut interest rates in 2024, with my base case being cuts at the August and November policy meetings,\u201d he says.<\/p>\n \u201cThe first move in August is expected to a larger 0.35% cut to 4% (bringing the cash rate back to quarter percentage point levels), with one further 0.25% cut in November.\u201d<\/p>\n Source: BetaShares<\/p>\n Bassanese sees stronger economic growth, lower inflation, though a modest lift in the unemployment rate.\u00a0 He says disinflation trends we are seeing in the global goods sector will increasingly filter through to Australia, while service sector price increases will also slow as cost pressures ease.<\/p>\n \u201cLower inflation will, in turn, help boost real household incomes, while along with RBA rates cuts will support a send half rebound in consumer spending,\u201d he says.<\/p>\n Furthermore, Bassanese forecasts Aussie bonds yields to fall further as the reality of RBA rate cuts takes hold and the market prices further rates cuts for 2025.<\/p>\n He says While RBA rate cuts should support house prices, easing in immigrations, lift in unemployment and already poor affordability should constrain further house price gains in 2024.<\/p>\n And despite rate cuts Bassanese says the Aussie dollar should also strengthen, reflecting earlier and more aggressive US interest rate cuts.<\/p>\n \u00a0<\/p>\n While the Aussie bourse has been off to a subdued star in January, Bassanese is confident it will go up strongly in 2024 to end the year at 8500 points.<\/p>\n \u201cAlthough the Australian corporate earnings have been going through a soft patch due to a weakened consumer and easing commodity prices, forward earnings should start to recover this year as they begin to factor in the earnings recovery expected in FY25 and FY26,\u201d he says.<\/p>\n He says lower bond yields and an improving local and global growth outlook should also support the earnings and market outlook.<\/p>\n \u201cIf lower bond yields encourage a lift in the PE ratio somewhat higher, say 17, the market could end the year at 8500,\u201d he says.<\/p>\n \u00a0<\/p>\n BetaShares says equities are a staple component of many investment portfolios. However, the ETF provider says adopting an \u201call-weather\u201d strategy in building your investment portfolio is important and involves keeping a significant but balanced exposure to equities.<\/p>\n \u201cThis strategy focuses on investing in robust companies that are likely to withstand potential economic challenges,\u201d BetaShares says.<\/p>\n The ETF provider says investors should consider free cash flow (FCF), which represents the cash a business produces from its operations after covering capital expenditures and working capital needs.<\/p>\n \u201cUnlike profit, which requires interpretation through accounting standards, cash flows are more straightforward and less subjective,\u201d BetaShares says<\/p>\n FCF is versatile, aiding growth in a robust economy through expansion, efficiency improvements, or acquisitions. In tough times, it enables debt management without depending on external funding.<\/p>\n BetaShares says studies indicate that companies with high FCF may outperform those with lower FCF. The Betashares Global Cash Flow Kings ETF (ASX:CFLO) invests in a portfolio of global companies with strong free cash flow.<\/p>\n Furthermore, BetaShares says there is no substitute for quality with quality companies typically exhibiting high returns on equity, minimal leverage, and stable earnings.<\/p>\n BetaShares a\u00a0portfolio comprising such quality companies is likely to outperform broader market benchmarks over the long term.<\/p>\n The BetaShares Australian Quality ETF (ASX:AQLT)<\/strong><\/a> is Australia\u2019s only passive quality ETF.<\/p>\n \u00a0<\/p>\n Global X product and investment strategist Marc Jocum<\/a> told Stockhead<\/em> predicting what will happen in the short-term is challenging given the constantly evolving market environment.<\/p>\n He agrees that an all-weather diversified portfolio is the way to go for investors with share markets doing a decent job at pricing in expectations .<\/p>\n \u201cBut it\u2019s quite difficult putting a price on uncertainty,\u201d he says.<\/p>\n \u201cInstead of predicting it\u2019s best to prepare by having an all-weather diversified portfolio that can navigate whatever happens in 2024,\u201d Jocum says.<\/p>\n \u201cThis means investors looking to diversify into different asset classes that have different correlations and drivers of returns.\u201d<\/p>\n Jocum says two examples of diversifiers to help build an all-weather portfolio include treasury bonds and gold.<\/p>\n \u201cWhile bonds have had a poor couple of years due to inflationary pressures and rising interest rates, things are looking more optimistic for the asset class.<\/p>\n \u201cFor example, US Treasury real yields are sitting in their highest 90th percentile over the past 20 years at many points in the curve.\u201d<\/p>\n He says with attractive yields, and the market\u2019s expectation of central banks such as the US Federal Reserve to cut rates, bond prices could see reasonable capital appreciation, given their inverse relationship to interest rates.<\/p>\n \u201cIf shares experience a tougher 2024, bonds can be the ballast to help navigate the year ahead as a key diversification pillar in portfolios.<\/p>\n \u201cShares outperform bonds overtime, just not every time.\u201d<\/p>\n Jocum says gold is a safe haven asset for investors to consider in their portfolios, especially in times when stocks and bonds are highly correlated like we saw in 2022 and 2023 and especially if inflation remains sticky.<\/p>\n He says Australian-priced gold reached an all-time high on October 31, 2023 at at AUD $3,151 per ounce and things are looking positive for the precious yellow metal going into 2024.<\/p>\n \u201cA combination of factors such as falling real yields, a weaker US dollar, strong central bank demand \u2013 primarily from emerging market institutions \u2013 and continued geopolitical risk, all buoy well for gold to be a key stabiliser in portfolios in 2024,\u201d he says.<\/p>\n Furthermore, Jocum says ETFs are a great tool for investors to use to help build a portfolio that can handle different market environments.<\/p>\n \u201cHaving growth-oriented ETFs that focus on broad share markets or specific themes (like disruptive technology) can enhance returns, and strategically complementing them with defensive assets such as bonds and gold can provide resilience against any stormy conditions that come the market\u2019s way in 2024,\u201d he says.<\/p>\n \u00a0<\/p>\n VanEck Asia-Pacific CEO and managing director Arian Neiron<\/a> reckons investors should always work to have a diversified portfolio.<\/p>\n \u201cIf the past year taught investors anything, it\u2019s that being selective and diversified is key to riding the economic cycle,\u201d he told Stockhead<\/em>.<\/p>\n \u201cStay the course and seek quality exposure across all risk asset classes including equities and fixed income.\u201d<\/p>\n Stockspot founder and CEO Chris Brycki<\/a> recommends preparation rather than prediction when it comes to financial markets.<\/p>\n \u201cWe believe that the best investors are those who have the humility to acknowledge the unknowable nature of the future and the discipline to adhere to an investment strategy that embraces this reality,\u201d he says.<\/p>\n Brycki says the strategy at Stockspot, which is an online investment advisor which builds custom portfolios using ETFs, is straightforward.<\/p>\n \u201cInvest in a diverse mix of low-cost index funds for the long term, and tune out the noise,\u201d he says.<\/p>\n \u201cIn essence, focus on what you can control and leave the things you can\u2019t to the wayside.<\/em><\/p>\n \u201cI believe this approach not only aligns with the evidence but also offers a more sensible and sustainable path to financial success.\u201d<\/p>\n The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.<\/em><\/p>\n <\/span><\/p>\n The post Why Aussie ETF providers reckon you need an \u2018all-weather\u2019 portfolio in 2024<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"S&P ASX 200 to end year at 8500<\/h2>\n
Build an \u2018all-weather\u2019 portfolio<\/h2>\n
Look to treasury bonds and gold<\/h2>\n
Stay the course and be diversified<\/h2>\n