Pre-election Jitters
October saw a mixed outcome for asset markets, with shares around the world modestly weaker, whilst bond markets had their worst month in two years. Milford funds fared well, with the diversified funds broadly outperforming underlying markets.
At the time of writing, the US election has captivated the attention of investors. Whoever wins, and how much power they have, will be a key determinant of the policy mix that will impact markets going forward. But more broadly, investors are now realising that the US economy is very resilient and that market expectations of future interest rate cuts were too large. This realisation and subsequent repricing generated a large fall in bond markets last month. We have been avoiding too much exposure to bonds, particularly long-dated ones and so were partly insulated from these moves. Even our lower risk funds managed to hold on to their significant gains of the past two years.
Stronger US economic growth and resilient global labour markets, coupled with central banks cutting interest rates and Chinese economic stimulus, provided a strong tailwind for share markets. However, given the strong rallies over the past two years and elevated valuations and sentiment, it can be argued that a lot is already in the price. This keeps us open-minded about further price gains but wary of any risks that could emerge to derail the strong trajectory.
October also saw a sharp fall in the NZ dollar. This was driven by broad US dollar strength, as opposed to domestic NZ conditions. Our funds have been tilted heavily towards increased US dollar exposure, helping performance last month. Given the moves, we moderated some of our positions towards the end of the month.
With all the noise around the election and the economy, it’s easy to miss the developments going on in underlying stocks. Last month saw global companies report quarterly profits. For more information on how our stocks are traveling, read the various fund updates. In any market environment, and regardless of who wins the US election, there are always plenty of opportunities for us to invest.
