As an Investment Committee, we can’t help but feel a sense of déjà vu, as 2020 has commenced in a similar fashion to 2019, with broad rallies across all major asset classes. The US market has posted a return of almost 23% and the Australian market is nudging 16% for the year ending 10 February and each has rallied strongly over the last quarter.
The primary stimulus for this optimism has been the signing of Phase 1 of the US and China trade deal and the consensus view that economists now expect the growth cycle to continue to run, albeit in a more modest manner. Recession risks have also eased in Australia with the recovery in house prices a key positive for the outlook this year. But the economy continues to languish despite record low-interest rates and significant income tax cuts in the September quarter. Moreover, the shocking bushfires will likely be another negative for the economy in the near term, although it will provide some support for growth later this year and in 2021 as rebuilding efforts get underway.
One event in recent weeks has captured the public’s attention, and that is the Coronavirus. Public health outbreaks and epidemics like the Coronavirus can scare investors and, eventually, affect economies and businesses. This outbreak may push China’s economy into a period of slower growth, with shares trading lower as investors seek protection and there could also be a global impact in terms of the contagion and its economic side effects.
So, what does that mean for the portfolios we run? Leaning on some of our research partners, we looked at nine major outbreaks since 1998 and the research indicates there is little evidence linking global epidemics with long-term investment fundamentals. Long term investing is often best disconnected from short term economic reactions, so at all times, we encourage our clients to focus on what matters.
We are delighted with the performance of our portfolios in 2019. In the year to 31 December 2019 the AAN Growth Model delivered a return to investors of over 24% before fees, and outperformed the likes of UniSuper, Australian Super, SunSuper and Host Plus. The AAN Core Model, with only 65% of its assets invested in shares and property, delivered a return of over 18% and once again outperformed many of its peers.
Whilst markets have rallied broadly, it is important to note some of the actions undertaken by the Investment Committee that have enhanced your returns. By means of a summary, members of the AAN Investment Committee have, on your behalf, actioned the following throughout the last 12 months:
- March, June, September, and December of 2019 we rebalanced the models taking profits
- March, we introduced a corporate debt investment into our Core model taking advantage of the change in interest rates;
- March, we added an Independent Researcher to our Investment Committee;
- June, we decreased model fees, and in August we decreased administration fees;
- September, we introduced a new international ETF into the portfolio to reduce costs;
- Had more than 150 meetings with investment managers, 10 Investment Committee meetings, and attended several portfolio construction conferences
- Corresponded with investment managers, analysts and investment professionals via email on hundreds of occasions
Should you have any questions about your portfolio, we would encourage you to email your adviser and to schedule a review in February or March.