Sometimes the best offence is a good defence

LiveWire

09 Apr

For many Australian advisers, building a balanced portfolio for their clients has rested on a central principal. To manage volatility, a portfolio should be diversified, combining a mix of defensive ...

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To manage volatility, a portfolio should be diversified, combining a mix of defensive ...</p>\n\n<a href=\"https://www.livewiremarkets.com/wires/sometimes-the-best-offence-is-a-good-defence\">Source Link</a>\n\n</div>\n","source":"livewire_stock","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sometimes the best offence is a good defence</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSometimes the best offence is a good defence\n</h2>\n\n<h4 class=\"meta\">\n\n\n2025-04-09 06:45 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.livewiremarkets.com/wires/sometimes-the-best-offence-is-a-good-defence><strong>LiveWire</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>For many Australian advisers, building a balanced portfolio for their clients has rested on a central principal. To manage volatility, a portfolio should be diversified, combining a mix of defensive ...</p>\n\n<a href=\"https://www.livewiremarkets.com/wires/sometimes-the-best-offence-is-a-good-defence\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"XJO.AU","symbol_name":"标普/澳交所 200指数","start_time":0,"source_url":"https://www.livewiremarkets.com/wires/sometimes-the-best-offence-is-a-good-defence","article_id":"2526387856","we_media_id":null,"thumbnails":[],"rights":{"source":"livewire_stock","url":"https://www.livewiremarkets.com/wires/sometimes-the-best-offence-is-a-good-defence","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2526387856","pubTimestamp":1744152351,"columns":[],"sourceInfo":{"source_id":"livewire_stock","name":"Livewire Markets"},"weMediaInfo":null,"summary":"For many Australian advisers, building a balanced portfolio for their clients has rested on a central principal. To manage volatility, a portfolio should be diversified, combining a mix of defensive and growth assets. The rationale is derived from Nobel prize winning economist Harry Markowitz, who pioneered the theory of diversification in his paper “Portfolio Selection”, which was first published in 1952.“A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies”. Harry Markowitz.It is interesting to consider what Markowitz would make of financial markets today. Given the continued evolution of capital markets, there is now a huge breadth of asset classes and instruments for advisers to use for their clients, that go far beyond the traditional “60/40” portfolio . Unfortunately, the traditional negative correlation between equities and bonds broke do","collect":0,"end_time":0,"defaultTopTitle":"livewiremarkets.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"XJO.AU":"标普/澳交所 200指数","MXT.AU":"Metrics Master Income Trust","XKO.AU":"标普/澳交所 300指数","XAO.AU":"标普/澳交所 普通股指数"},"translate_title":"有时候最好的进攻就是好的防守","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MXT.AU":1,"XAO.AU":0.9,"XJO.AU":0.9,"XKO.AU":0.9},"content_text":"For many Australian advisers, building a balanced portfolio for their clients has rested on a central principal. To manage volatility, a portfolio should be diversified, combining a mix of defensive and growth assets. The rationale is derived from Nobel prize winning economist Harry Markowitz, who pioneered the theory of diversification in his paper “Portfolio Selection”, which was first published in 1952.\n“A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies”. Harry Markowitz.\nIt is interesting to consider what Markowitz would make of financial markets today. Given the continued evolution of capital markets, there is now a huge breadth of asset classes and instruments for advisers to use for their clients, that go far beyond the traditional “60/40” portfolio (where 60% of a portfolio is broadly invested in equities, 40% in fixed income). Unfortunately, the traditional negative correlation between equities and bonds broke down from 2020, with both asset classes tending to move in a slightly positive, rather than negative manner. \n\n\n\n\n\n\n\n\n\nChart 1: Australia Bond/Equity correlation over discreet time periods. Source: Bloomberg, Pinnacle, April 2025.\nPerhaps, like many Australian investors, Markowitz would have looked at private credit to complement the traditional fixed income exposure in his portfolio. The ability to capture attractive risk-adjusted returns, and the uncorrelated nature of private credit to both government and corporate bonds, means that private credit has been a favoured destination for superannuation funds[1] and retail investors for much of the last decade.\n\nPrivate Credit’s correlation with traditional asset classes\nThe relevance of private credit to portfolio construction, and its role in delivering portfolio diversification benefits, lies in the fact that private credit performance typically moves independently from traditional asset classes. The chart below highlights the low or negative correlation of private credit to both bonds and equities.\n\n\n\n\n\n\n\n\n\nChart 2: Private Credit* correlation to traditional asset classes. Metrics Master Income Trust (ASX: MXT) used as a proxy for Private Credit.\nA positive\ncorrelation of +1.0 indicates different assets will perform in tandem, whilst a\nnegative correlation of -1.0 indicates assets will move independently of each\nother. As public market assets have moved in tandem, private credit’s low\ncorrelation profile (-0.01 and 0.01 with Australian equities and government bonds\nrespectively) provides critical diversification for\nthe Australian investor. \n\n\nThese benefits are particularly important in periods\nof market stress, when correlations between asset classes tends to spike higher\nand move into positive territory. \n\n\n\n\n\n\n\n\n\nChart 3: Rolling 24-week Australia Bond/Equity correlation. Source: Bloomberg, Pinnacle, April 2025.\nRecalibrating portfolios for evolving market regimes\nPrivate credit now stands as a critical component of a balanced portfolio of assets. Public markets have become more and more short-term in nature, with turnover rates and average holding periods rapidly declining. Sentiment swings can drastically move prices higher and lower.\nThis decade, the public fixed income asset class has not provided the diversification benefits that it has done in the past. This was largely the result of a cocktail of low yields, high inflation, and rising interest rates. \nTotal returns from fixed income have been poor since 2017, while high inflation has meant that the average real fixed income return has been negative (i.e. the return adjusted for inflation).\n\n\n\n\n\n\n\n\n\nChart 4: Total returns of Australian fixed income asset classes (9/10/17– 2/4/25). Source: Bloomberg, Pinnacle, April 2025. Past performance is not a reliable indicator of future performance. IPO of Metrics Master Income Trust 9 October 2017.\n\n\n\n\n\n\n\n\n\nTable 1: Total and real returns of Australian fixed income asset classes (31/10/17-31/3/25). Source: Bloomberg, Pinnacle, April 2025. Past performance is not a reliable indicator of future performance. IPO of Metrics Master Income Trust 9 October 2017.\n\nAdjusting defensive allocations for current and future markets\nSince 2017, the Metrics Master Income Trust (ASX: MXT) has produced superior returns with lower volatility. Its low correlation profile to both Australian equities and bonds, has provided critical diversification for those investors seeking attractive risk-adjusted returns.\nPrivate credit’s diversification benefits stem from three structural factors:\n\n\nLower volatility: Unlike public fixed income, private credit valuations reflect contractual cash flows rather than daily changes in the views on the direction of interest rates and overall market sentiment swings.\n\nBorrower-Lender Alignment: Direct lending agreements include covenants, controls and collateralisation absent in public markets, decoupling the investment from the heavy impact of broader macroeconomic drivers seen with public bonds.\n\nEconomic sensitivity: Metrics Credit Partners lends to large-scale corporates who are less impacted by the economic cycle. According to ASIC Corporate Insolvency Statistics for FY24, over 99% of insolvencies were from businesses with $10M or less in assets - small businesses that Metrics does not lend to.\n\nEmpirical validation comes from the 2022–2024 rate hike cycle, where Australian private credit maintained 6–8% net returns despite 15% declines in composite bond indices, demonstrating negative beta to duration risk.\nAn opportunity to modernise the 60/40 portfolio\nWhile many investors may focus on the ability of private credit to diversify and lower overall risk within their portfolios, the ability of the asset class to meaningfully enhance returns cannot be overlooked. The long-term nature of many private credit investments makes their potentially enhanced return profile even more appealing to Australian investors. \nAdditionally, as private credit investments are unlisted, short term ‘mark-to-market’ valuation volatility within a portfolio, likely during periods of market stress with listed investments, is less of a concern. \nPrivate credit now rightfully stands a long-term strategic allocation withing a balanced portfolio of investments, and one that is likely to continue to provide important diversification and return benefits in the years ahead.\nIn times of market stress and uncertainty, sometimes the best offence is a good defence.   [1] (VIEW LINK)  \n\n\n\nNever miss an update\n\n    Enjoy this wire? Hit the ‘like’ button to let us know. \n    Stay up to date with my current content by \n    following me below and you’ll be notified every time I post a wire","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"code":"91000000","status":"200"}}}