At Wilsons, we believe an allocation to private equity (PE) makes sound strategic sense within the broader alternative investments portion of diversified portfolios. In our view, the case for private equity investment rests on three key pillars: a strong performance track record for the asset class, a deep and differentiated opportunity set, and significant diversification benefits.

In May 2020 our research spoke to a satellite holding in emerging market equities (EM) having the potential to add value for investors over the medium to longer-term. Following very strong performance from EM equities in the second half of 2020, the past 6 months have been more challenging, with a broadening regulatory crackdown impacting the Chinese equity market in particular.

The global earnings cycle continues to surprise with its strength. Both US earnings and European earnings are significantly exceeding analyst expectations.

It is noteworthy that bond yields have fallen back to very low levels while the US and Australian equity markets have continued to push higher, reaching record highs. Are bond investors foretelling a significant slowdown in global growth that equities investors are ignoring?

With the global economic recovery expected to broaden and policy settings still very supportive we detail our third quarter strategic asset allocation.

In Australia, property prices have surged over the last year, increasing by 13.5% in the year to May. This situation is not isolated to Australia. House prices across most developed nations have been rising.

We remain constructive on the A$’s 6 to 12- month prospects, with the prospect of further global re-opening and an above-trend growth environment, typically bearish for the US$ and bullish for commodity-driven/risk on currencies such as the A$. 

After a sharp sell-off in the first quarter bond yields have surprised the consensus by falling in Q2. The US bond market has led the decline, although the Australian bond market has seen a similar pattern.