InvestSMART Core Growth Portfolio Update - December 2018
We saw a complete reversal of fortunes in international markets in the final quarter of 2018. US markets delivered their best quarterly return in 5 years in the September quarter, only for the December quarter to be the complete opposite. It was the worst quarter in almost 10 years. It was also the worst December in 50 years for US markets. The Vanguard MSCI Index International Shares ETF (VGS) has a 63% exposure to US markets, which explains why it detracted -3.61% in overall performance over the quarter.
Focusing on this first quarter of 2019, two key events will define international markets, being the ‘finalisation’ of Brexit and US Q4 earnings season. US earnings season has already taken on a bigger meaning from an Australian-centric point of view with Apple singling out China as the reason it will miss its original revenue estimates. If other US-listed firms follow suit and downgrade earnings due to waning Chinese demand, the ASX will likely see downward pressure given Australia’s reliance on Chinese demand for our goods and services.
The iShares Core S&P/ASX 200 ETF (IOZ) detracted -2.36% from performance over the December quarter. Australian equities were impacted by the global sell-off, as well as the Banking Royal Commission. The threat of regulation continues to surround the Financials sector, a sector that makes up over 40% of the ASX 200. This quarter, the Australian market will experience H1FY19 reporting season. We will direct a keen eye to those firms with Chinese
exposure as international and domestic firms are suggesting Chinese demand slipped in the final quarter of calendar year 2018 and this could hurt returns.
However, the Core Growth Portfolio is diversified. It has a 29% weighting to ‘defensive’ assets, something that mitigated the portfolio from seeing larger, more volatile trading losses. The iShares Core Composite Bond ETF (IAF) attributed 0.21% while the Vanguard Global Aggregate Bond Index (Hedge) ETF (VBND) added 0.07% in the final quarter as both domestic and international bonds markets saw solid inflows. Diversification will be key over the interim period as it will buffer from single-asset volatility.
Nevertheless, this Portfolio’s core focus remains growth over the long term (5 years). We believe the current correction is providing entry points for those looking for long-term, above average returns.
To see more information on our Core Growth Portfolio, click here.
Frequently Asked Questions about this Article…
International markets experienced a significant downturn in the final quarter of 2018, with US markets having their worst quarter in almost 10 years and the worst December in 50 years. This was a stark contrast to the strong performance seen in the September quarter.
The Vanguard MSCI Index International Shares ETF (VGS), which has a 63% exposure to US markets, saw a performance detract of -3.61% over the quarter due to the downturn in US markets.
Two key events expected to influence international markets in early 2019 are the finalization of Brexit and the US Q4 earnings season. These events are anticipated to have significant impacts on market dynamics.
If US companies report earnings downgrades due to reduced Chinese demand, it could put downward pressure on the Australian market, given Australia's reliance on Chinese demand for goods and services.
The iShares Core S&P/ASX 200 ETF (IOZ) detracted -2.36% from performance due to the global market sell-off and the impact of the Banking Royal Commission, which continues to pose regulatory threats to the Financials sector.
The Core Growth Portfolio mitigates against market volatility through diversification, with a 29% weighting to defensive assets. This strategy helps buffer against single-asset volatility and reduces the impact of market downturns.
Bond ETFs played a positive role in the Core Growth Portfolio's performance, with the iShares Core Composite Bond ETF (IAF) contributing 0.21% and the Vanguard Global Aggregate Bond Index (Hedge) ETF (VBND) adding 0.07% in the final quarter.
The current market correction is viewed as an opportunity for investors seeking long-term, above-average returns, as it provides entry points for growth-focused investments over a five-year horizon.
Call 1300 880 160
Start a chat
Schedule a call
