Summary

• A consequence of a very strong equities market is that valuations begin to look toppy or risky

• The underperformance of the resources sector has been coming for some time on the back of China's slow reemergence from COVID  

Full transcript

How would you characterise how we have been performing in the current market conditions? 

Current markets have been very supportive for returns over the last year. We're getting close to double digit returns in our High Growth and Balanced Fund.  

The year has really started off on a brisk note. At the beginning of the year we thought expectations for rate cuts and a positive economic environment could be supportive for risk assets. But really over the last quarter, the market has performed well. And that's seen us deliver above benchmark returns for the quarter*. 

Now valuations are looking expensive, how are we positioned and what does that look like going forward?

Yeah, so a consequence of a very strong market is that valuations begin to look toppy or risky, and that's evident in domestic equities and it's really evident in international equities, particularly in the Magnificent Seven.  

So what are we doing? We're taking an opportunity to diversify and add more defensive assets to our portfolio. One of the new exposures in our portfolio is in an infrastructure debt fund that we've done in partnership with another manager. It offers cash-plus returns for investing in areas like financing new batteries as part of the transition. So high single digit returns. But a different risk to the economical valuation risk that you take with traditional equities.  

There's been a rotation out of resources recently. Could you describe this and explain how it's played out?  

In a way it's been underway for a while. The Chinese economy has emerged from COVID in a different way to developed market peers, it was a slower reemergence. And we've seen with that resources have underperformed, particularly more recently. That has been a tailwind for our portfolios because we were not invested as much, particularly in those in those bulk materials like iron ore. 

With resources underperforming, there's an opportunity for us to invest in future energy scenarios. How are we going to take advantage of that? 

The recent underperformance in resources is giving us an opportunity to add metals positively exposed to the transition like lithium and copper to the portfolio at more attractive valuation. We take a broad approach to investing for the transition, including capital in VC (venture capital), late stage private equity through a new investment in Octopus Energy, and importantly, we're adding defensive exposures there; I mentioned before the infrastructure debt fund, investing in debt for batteries as well through this scenario.