Fund manager George Boubouras has recently joined Contango Asset Management and we asked him for some investment resolutions for 2015.
Where do you think interest rates are headed?
Domestically there will continue to be a bias towards income, which has been a long-standing theme. The lower rate environment will remain for some time and the SMSF sector will continue to search for yield. The market continues to price in the prospect of a rate cut. This will help households repair their balance sheets and eventually help drive additional credit growth by year-end. Dividends with franking will remain compelling in the year ahead. Telcos, infrastructure, banks, diversified financials and REITs will continue to be in demand for equity income portfolios.
What about the Aussie dollar?
The lower Aussie dollar will, in aggregate, help corporate Australia repair its balance sheet. Companies from various sectors such as Brambles, Amcor, Westfield, Resmed, CSL, Ansell, Macquarie, Computershare, and James Hardie generally benefit from a falling Aussie dollar. It’s important to reflect that a sharply falling Aussie dollar implies excess global market volatility, therefore impacting equities more broadly. The lower Aussie dollar acts partly as a cushion. Looking forward an Aussie dollar trading around 75 cents appears to be a consensus level that also reflects the longer-term purchasing power parity (PPP) valuations.
And will there be plenty of volatility?
The year ahead will continue to see pockets of excess volatility as markets adjust to the sharply lower oil prices with the implications for earnings for the sector, fiscal impact for the countries that are net exporters and viability of future investment within the sector. There will also be a high likelihood of a credit market correction as some risk aversion builds.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.