Investment markets have carried their momentum into the second half of the year, with most major share markets at or near record levels. Company earnings expectations keep being revised upwards — particularly for the large global businesses seen as the winners from AI — and, for now, profits have been delivering on those upgrades.
The difficulty is that a lot of good news is already in the price. On most conventional measures, shares are expensive relative to their own history, and the reward for owning the riskier end of the market has narrowed considerably. The long-term return expectations we work with suggest that, from today’s starting point, a high growth portfolio is likely to deliver only modestly more than a more balanced one — while still exposing an investor to the full force of a market correction. Put simply, investors aren’t being paid much for taking on that extra volatility at present.
Overlaying this is a political and trade backdrop that markets are struggling to price. The US administration continues to announce, delay, soften and then reinstate tariff and policy positions, and markets have largely learned to look through it. That may prove sensible. It may also mean the market is under-pricing the chance that one of these positions eventually sticks and does lasting damage to global trade and confidence.
As a result, most of our clients are invested a little more defensively than their long-term neutral settings. The main overweight is fixed interest. With higher interest rates and growth-stock valuations stretched, quality bonds now offer a genuinely competitive, lower-risk source of return. This is the largest active position in the portfolio.
We are also modestly overweight international shares, where earnings upgrades have been strongest and the opportunity set is broadest.
The main underweights are Australian shares, alternatives and property. Locally, interest rates staying higher for longer, softening house prices and subdued consumer sentiment continue to weigh on domestic company profits. Property has been trimmed ahead of further interest rate uncertainty, despite performing well recently, and alternatives are held below neutral while we favour the liquidity and lower cost of the core index holdings. Cash sits at neutral — enough dry powder to act on opportunities without diluting the portfolio’s growth objective.
If you would like more detailed insights, please reach out to us.
General Advice Warning: Any advice included in this article and associated links is general in nature and would not consider your particular objectives, financial situation or needs. You should seek personal advice from Grand Plan Wealth to consider if the strategies and products are right for you. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. Other than cash deposits falling under the Australian Government’s Financial Claims Scheme, any investment we recommend has the potential to deliver a loss to an investor. Nevertheless, we are of the view that for Australian investors it is reasonable to expect a skilfully managed diversified portfolio to deliver positive returns over the long term, over and above cash returns and the impact of inflation.
