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Risk assets trimmed following further outperformance


13 May 2021


The blue sky scenario remains intact for now. However, according to our Chief Investment Office, rain clouds are beginning to form on the horizon.

The notion of countries and economies emerging from lockdowns remains the base on which equity markets have continued to grind higher over the last couple of months. This blue sky scenario remains broadly intact, but a lot of optimism is already reflected in equity prices. Further to this, small cracks are beginning to appear on the surface of the recovery; while the rollouts of the vaccines have been broadly better than expected (particularly across developed nations) others including Brazil and South Africa have struggled - India meanwhile is spiraling out of control.

As mentioned previously, this unevenness in the global recovery might lead to some confusing news flow for investors and irregular business cycles across the globe. This has already manifested somewhat in the angst surrounding rising inflation and premature tightening by central banks. The latest comments by US President Biden about significant increases in capital gains taxes have the potential to further spook markets. Simmering geopolitical tensions, which have played second fiddle to the virus over the past 12 months, are also becoming harder to ignore.

It’s far from gloomy though as liquidity provisions by central banks and favourable macroeconomic tailwinds continue to provide a good basis for equity investments. Moreover, looking at the forthcoming earnings season, it is often the case that after periods of high levels of macroeconomic volatility (i.e. very deep recessions), analysts are rather slow in adjusting their expectations, which at the moment sets the bar very low for potential upside surprises.

So what’s next for markets? Even though one might see some small pockets of volatility in the weeks ahead, our base case of relatively smooth sailing through the early parts of the northern hemisphere summer remains intact.

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What this means for our diversified portfolios

Despite rain clouds beginning to appear on the horizon, we believe there is some time left until we need to batten down the hatches, nonetheless preparation has already begun in earnest.

We remain mildly overweight growth assets. However, with valuations expensive and index levels at all-time highs, we have taken some profits, recognising any moves higher from here shouldn’t be material. This has been done by reducing the more cyclical parts of our growth exposure - Australian equities and global REITs (GREITs) - after solid performance since the implementation of overweight positions late in 2020.

We have placed the proceeds into cash at this stage and watch markets carefully before any decision to redeploy elsewhere. We maintain overweight positions in global developed markets and emerging markets equities.

ANZ investment strategy positions - May

Investment position
Asset class Assessment
Developed market equities We maintain our mild overweight to developed market shares, seeking a somewhat balanced approach between the value trade and other market segments. The US, which is more ‘growth heavy’, represents a structural defensive pillar, while allocations to the Eurozone and Japan are more value-oriented. 
Australian equities We have reduced our exposure to Australian equities following strong performance from the asset class since shifting to a mild overweight late in 2020. We currently see better opportunities elsewhere within developed markets.
Emerging-market equities We remain mildly overweight in emerging markets equities. The region still scores well in our scoring model, particularly within the growth and momentum indicators, and the asset class is the most attractive equity region in terms of a 12-month return upside.
Global REITs We have reduced our exposure to global REITs (GREITs), previously the largest overweight in our portfolios, following exceptional performance over the last six months. Despite the downgrade, GREITs remain attractive given their dividend yield, diversifying effect for multi asset portfolios and ability to act as an inflation hedge.
Infrastructure There is no change to our view on listed infrastructure from last month. We retain our mild underweight to the asset class, awaiting potential opportunities to allocate further given the ‘lower for longer’ rates scenario and potential for further fiscal support via infrastructure spending.
Alternative growth We advocate a long-term strategic allocation to alternative risk and return drivers in order to provide diversification from equity beta. This asset class typically has less volatility than equities and is therefore a valuable diversifier in periods of extreme markets conditions. 
Foreign Exchange Hedge Ratio* Within our diversified portfolios we maintain a mild underweight to the AUD, given it is a risk currency. We prefer more developed market foreign currency exposure (in particular the USD) which should act as a form of protection in the event of any market pull-back.
International fixed income Our strategic fixed income duration view of “lower for longer” underpins our benchmark position in international fixed income, which has been reduced from a mild overweight due to portfolio drift. In the global space we continue to see better potential opportunities in credit over sovereigns given monetary policy support, the hunt for yield and economic prospects.
Australian fixed income Following recent outperformance of equities relative to bonds, our previously mild overweight to the asset class drifted back to benchmark. We have made an active decision to retain this neutral positioning to Australian bonds, based on a number of still favourable metrics within the asset class. 
Cash We are underweight in the asset class, preferring the relatively low-risk yield pick-up afforded by fixed income at present.


*Percentage of developed market and emerging market equities hedged from foreign currency into Australian dollars.

 Tactical Asset Allocation is current as at 1 May 2021.


To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.

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