The need for defensive assets amid falling recession risk

lonsec/fixed-income/recession/asset-allocation/

10 April 2024
| By Laura Dew |
image
image image
expand image

Investors should not neglect their allocations to defensive assets, with Australia poised for a soft landing, according to Lonsec.

In a podcast, chief investment officer, Nathan Lim, who joined the firm recently from Morgan Stanley, discussed how macroeconomic expectations are forecasting a soft landing, in line with Lonsec’s expectations.

For example, the US Manufacturing Purchasing Managers’ Index is above 50, Lim said, for the first time since September 2022, which represents growth or expansion within the manufacturing and services sector. 

However, the US yield curve is still inverted despite the recession risk falling.

“Every US recession since 1955 was preceded by an inverted yield curve,” Lim said. “It feels like the economy has bottomed out and is now improving, but the yield curve is still inverted and just broke the previous record by remaining inverted for more than 622 days.

“Inflation might explain some of the preference by investors for short-dated debt securities we believe the market is shying away from longer-dated Treasury securities given the US budgetary choices, specifically the lack of credible plan to reduce its debt levels.

“We believe this contrasting fiscal position will become more pronounced in time, so we continue to keep overweight Australian government bonds versus the US.”

He said Lonsec prefers Australian government bonds over US government bonds within its fixed income allocations.

Lim concluded: “Our key takeaway this month is the economy remains poised for a soft landing, so don’t neglect defensive allocations in your portfolios because even the best pilots can’t control turbulence.” 

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

2 months 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months 3 weeks ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months 4 weeks ago

ASIC has suspended the Australian Financial Services Licence of a Melbourne-based financial advice firm....

1 week 5 days ago

The corporate regulator has issued infringement notices to three AFSLs whose financial advisers provided personal advice to a retail client while unregistered....

2 weeks 3 days ago

ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test....

3 weeks 1 day ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND