Positioning for slowing growth resulting from a recession

Hi Michael,

A great question as central banks walk along the gymnasts beam balancing inflation against avoiding a recession.  At the moment we are experiencing an economy of two halves with people exposed to rising prices, rents and mortgages struggling while “cashed up” people aren’t being significantly impacted. The last few days have seen rate cuts in Canada and Europe and MM expects the RBA to follow suit in the next  6-12 months.

We believe portfolio performance over the coming 6-18 months will continue to determined by prudent correction portfolio construction, just consider 2024 year-to-date:

Winners: Paladin (PDN) +57%, Goodman Group (GMG) +39%, QBE Insurance (QBE) +24%, Webjet (WEB) +20%, and Westpac (WBC) +18%.

Losers: IGO Ltd (IGO) -24%, Fortescue (FMG) -17%, Super Retail (SUL) -16%, Woodside (WDS) -13%, and Telstra (TLS) -10%.

There are some standout moves here, in both directions, considering the ASX200 is up only 3% before dividends.  We are firm believers in equities over the long run hence we will simply continue to focus on optimum stock/sector selection, depending on the economic backdrop at the time.

However in specific reply to your question we are likely to adopt a more defensive stance towards stocks if/when we see the risks of a recession increase, e.g. utilities and supermarkets etc, and an increase in cash we will not ‘go to cash’ per se.