Pacific Asset Management (PAM), one of Melbourne Capital Group’s partners and a leading asset management company renowned for its robust growth portfolios, has exhibited exceptional performance in the first half of 2023.
The long-term performance of PAM Funds has seen the Aggressive Growth, Adventurous Growth and Balanced Growth portfolios all outperform the benchmark ARK Equity Risk fund over the first half of 2023. This trend is projected to continue as a result of rebalancing of the holdings in response to macroeconomic events such as last year's unusual fall in bonds and equity.
Kal Murray, Private Wealth Manager at Melbourne Capital Group summarises his key takeaways from the recent webinar with PAM’s Chief Investment Officer, Will Bartleet and Chief Sustainability Officer, Will Thompson on portfolio performance and their overview of the macro world.
Changes to Dynamic Funds.
For example, PAM took the decision to reduce holdings in U.K. equities in favour of increasing positions in the U.S. and Japan in anticipation of U.K. equities being squeezed by high inflation and rising interest rates.
The U.K., despite having attractive valuations has been suffering from sector skews of a cyclical nature. This has been compounded by aggressive monetary policy from the Bank of England in a bid to tackle persistently high inflation.
Similarly, positions in European equities have been trimmed following a string of weaker than expected economic data which has led to underperformance from the Eurozone.
In the short term, relative interest rate differentials between Japan and the U.K. have diverged, leading to a weakening of the Yen versus Sterling, making Japanese Bonds an attractive proposition.
Japan is also benefitting form the tailwind of improving corporate governance, as well as strong cash positions on company balance sheets and an increase of share buybacks. Furthermore, the Japanese index is trading at a discounted valuation to the broader equity markets, creating great opportunity for growth.
Positions in the S&P tracker were added to in acknowledgement of the AI theme, which has powered most of the index’s gains in 2023, to take advantage of the swelling valuations of the perceived winners of AI.
Forecasting Macroeconomic Scenarios.
Looking ahead at the second half of the year and into the first quarter of 2024, PAM have set out strategies for the three most probable outcomes of the current macroeconomic conditions. A recession or “Hard Landing”, a “Soft Landing” a term coined by Jerome Powell of the Federal Reserve to describe a protracted period of low growth which will allow inflation to fall over time and avoid the worst effects of a policy induced recession, or “No Landing” simply a continuation of the 2022 playbook on equities.
Using the U.S. Headline CPI Forecast, amongst other main indicators of inflation, PAM predicts that global inflation has peaked but is likely to remain high only returning to “normal” levels by early 2025. This suggests that the most likely scenario is still the “Soft Landing” where equity rates will remain stable, but growth may be anaemic until inflation is back under control at or near the 2% targets set by most Central Banks.
Keys to Navigating Investments in 2023 & 2024.
Looking to the opportunities for the second half of 2023 and beyond, PAM favours
- Inflation Linked Bonds which offer upside potential in multiple scenarios,
- Currency plays on the Japanese Yen versus Sterling, which are offering a high percentage of upside to fair value based on purchasing power,
- Japanese equities, which are cheap compared to the rest of the World and,
- Emerging markets, which present huge opportunity for growth and are offering the highest positive annualised expected premium over developed markets since 1996.
Given the uncertainty that remains globally, PAM suggest that diversification remains critical and although they remain cautious overall, they will look to take advantage of volatility in the global markets to drive growth where possible.
Unlocking Financial Opportunities with Private Investments.
Please reach out to Melbourne Capital Group if you would like more granular information on the multiple portfolios we have with Pacific Asset Management. We understand when you’re working hard, you want to know your money is doing the same. We can help by developing a tailored investment portfolio that seeks to deliver returns sustainably and responsibly.
If you would like a copy of the recording from this webinar, fill in the contact form below or email info@melbournecapitalgroup.com.
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