The need for defensive assets amid falling recession risk
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.”
AUTHOR
Laura Dew
Recommended for you
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
Fund managers are entering 2025 with the most bullish sentiment since August 2021 and record high allocations to US equities, thanks to the incoming Trump administration.
