MANAGE UNCERTAINTY THROUGH PORTFOLIO CONSTRUCTION
The ‘mystery’ of the unprecedented Central Bank and Federal Government stimulus measures in response to Covid continues to unfold. Will markets continue to be supported and rise, or will the sharply deteriorinating earnings and economic fundamentals see the completion of this extended investment cycle from ‘peak’ to ‘trough’?
More importantly, is your lifestyle fragile to the outcome? It doesn’t need to be through portfolio construction.
Major market falls are a regular and hazardous feature of the investment cycle. Most corrections of > 30-50% occur within 6-12 months and typically within an 8 years cycle. We are now at year 13 which is the longest since 1929.
The premise behind established finance portfolio construction theory to include diversified non correlated assets relates primarily to ‘investment risk management’ –you can prepare for all outcomes without the need to predict. Many portfolios are no longer diversified non correlated as a result of zero bound or negative interest rates. Previously bond interest rates would increase in ‘later cycle’ market conditions and be cut to stimulate the economy on market falls – with bonds acting as a non correlated asset that increased in value on market falls whilst providing regular income. In zero bound interest rates environments (the consensus view in Australia) most defensive assets provide little or no income, nor do they increase in value on market falls if interest rates are no longer to be cut below ‘zero’.
There have been 10 years of Government retirement income reviews in Australia to encourage the development of non correlated financial products that can be added to fortify your portfolio. The various reviews have listed the criteria to satisfy: regular income, capital protection, no lock in periods for investors, transparent pricing, strong counterparty, invest in growth assets for capital gains, no credit default risks.
Gyrostat meet all of these requirements and is a risk managed investing specialist.