Premium Investment Service (September)

Getting Our Heads Around the Big Shifts
This thematic is about the long term – the very long term. The purpose is to provide insight into the secular undercurrents affecting asset markets at the present time – and how they might influence our portfolio positioning. Indeed, what we are seeking are any insights into the persistent forces behind ‘regime shift’ in asset classes – how this affects pricing behaviour, and if there are opportunities for the Dozzi Investment Committee to exploit…

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Premium Investment Service (June)

Picking the Bottom
As a follow on to last month’s inflation outlook where it was detailed that (as consistent with our ‘base case’ scenario) it appears that US inflation is generally trending down and the US Federal Reserve is on track to begin to ease at its December meeting, does this mean that we should become more aggressive in upgrading our Growth allocations now rather than taking an ‘averaging in’ over the next 6mths?

To contrast, our ‘new investment cycle’ key indicators suggest we should not expect equity markets to trough until 2-3mths after the Fed eases. Does this mean that instead of averaging in now, should we wait until the Fed eases and then go ‘all in’?

Knowing what to do from an implementation standpoint around transition points between old and new investment cycles is difficult so this thematic looks at past recession experiences / investment cycle turning points to ‘put some flesh on the bones’ (so-to-speak) in terms of trading rule guidance for the Investment Committee. The aim is to discern what is the best path to take in lifting our Growth allocation given the present macro outlook….

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Federal Budget: 5 Things to Know

We’ve compiled a brief breakdown of a few topical subjects from the recent Federal Budget that we thought you’d like to know. 


1. $3m total Super Balance Tax 

Whilst there wasn’t much new information following the consultation paper released on this back in March, it is the key proposed change for superannuation contained in this budget. The proposal is that from 1 July 2025, earnings on an individual’s total superannuation balance of more than $3m (not proposed to be indexed) will attract an additional 15% tax. Earnings will be calculated by the difference in an individual’s total superannuation balance between the start and end of the financial year, adjusted for contributions & withdrawals. Then, this is multiplied by the % of the total balance that is above $3m. Assessment and payment will be similar to the process some of you are familiar with for Division 293 tax (i.e., the ATO will calculate it and send a nice letter informing you of any additional tax payable). Any negative earnings can be carried forward indefinitely and offset future earnings. Regarding defined benefits, they have said a ‘commensurate treatment’ is intended to apply to these, however no guidance on how this will be calculated has been provided yet.From a planning perspective, superannuation continues to be a tax preferred environment even with this new tax being put into place, and a key strategy for clients with large super balances would be to try and even up balances between spouses to prevent one partner going above the $3m balance whilst the other is far below the threshold…


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Premium Investment Service (May)

Inflation Outlook — Take 2
The inflation outlook is the proverbial million-dollar question at the moment. In September last year we put together an inflation outlook piece (based on US CPI) that predicted inflation will peak and then fall rapidly in early 2023. So far, so good. But the big question now is – will it keep falling or level out somewhere above central bank targets? And if so, at what level will inflation baseline?

This thematic looks at the underlying components of inflation and draws upon lessons of the past to see if we can garner any insights as to central banks’ abilities in getting structural inflation down.

Main Points: 
1. Services CPI is a worry. Looking back to the 1970s – another epoch where there was an exogenous inflation shock – services CPI stayed belligerently high and indeed put a floor under Headline CPI falling below 5% in the US. Is history about to repeat itself and therefore our ‘terminal, terminal’ scenario is a foregone conclusion?…

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Premium Investment Service (January)

January’s Thematic piece from the dozzi Investment Committee looks at turning point indicators for investment markets, including both a recession and recovery.

In a world where data is at your fingertips, what should we truly focus on to help make effective strategic decisions?

1. Turning Indicators 
It seems every pet shop parrot expects there to be some sort of slowdown this year – the question is ‘how much?’ So far, there is little evidence. Consumer spending is still motoring along (despite what the consumer sentiment indicators say), employment is strong, there seems to be an unnerving willingness on behalf of investors to ‘buy the dip’ – but just when will we see capitulation? After the raft of rapid interest rate rises by central banks over the course of 2022, surely there must be some sort of reckoning? This thematic piece looks at various upstream (and downstream) indicators to identify exactly what we should be looking for in the months ahead to see if the global economy is truly taking a turn for the worse….

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Premium Investment Service (December)

With 2023 now upon us, we explore the final investment committee analysis of 2022 and what actions may be required over the coming months to capitalise on the likely trajectory of investment markets.

We explore several market scenarios and what we rate as the most likely sequence of market events to unfold in 2023.

The 2023 Outlook 
Our ‘Base Case’ scenario outlook for 2023 is very simple – the central banks leading the monetary tightening charge over 2022, namely the US Federal Reserve (Fed), Reserve Bank of New Zealand (RBNZ) and Bank of England (BoE) can consider cutting rates in the second half (H2) of 2023 and thereby initiating the start of the next investment cycle (at least for them). Laggards like the Reserve Bank of Australia (RBA), European Central Bank (ECB) and Bank of Canada will likely not cut rates until 2024 – which implies a disparate global economic cycle and we’ll need to position accordingly. The ‘Santa Claus’ rally we are presently witnessing is likely to prove short lived as the weight of past monetary increases are likely to weigh heavily of the returns on capital – thus outweighing the promise of a lower cost of capital that is presently driving an upswing in higher risk (property, shares markets) asset classes. The upward path of the next bull market is likely to prove slow and grinding as central banks have their hands tied (in terms of providing too much stimulus) by the threat of another inflation breakout. It certainly appears like it won’t be the reflexive type of upward bounce experienced at the initiation of the past two investment cycles (post GFC and post COVID) which were fuelled by copious Quantitative Easing and government stimulus. As a consequence, alpha (excess return) is likely to prove far more valuable than beta (relative volatility to the index) for the next investment cycle and choosing the right managers will be crucial…

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Premium Investment Service (November)

In November we assessed the traditional 60/40 Balanced portfolio and the value of fixed income/bonds, given its poor performance during 2022. With the evolutionary nature of markets worldwide, can fixed income can be relied upon in the future, as it has in the past.
The New 60/40 
Diversification isn’t dead – it’s just hard to come by. The old days of having a well-diversified portfolio with a split of 50 to 60% growth (read ‘equities/property’) and 40 to 50% defensive (read ‘fixed income/cash’) seems not to be quite as adequate anymore. Each investment cycle seems to have its asset class casualty – for the investment cycle leading up to the GFC it was a structured product, for the investment cycle leading up to COVID it was ‘alternatives’ (namely, expensive hedge fund products). Will fixed income be the asset class casualty of the latest – albeit very short – investment cycle (or, more likely will it be cryptocurrency)? Only time will tell but the reality is that we, like many others, are looking for the income-generation / diversification benefits once sought from fixed income, in other assets – namely, illiquid products. Are well-diversified 60/40 portfolios of the future likely to have an adroit mix of traditional ‘growth’ assets like equities making up the ‘60%’ while illiquids and cash (for liquidity purposes) make up a majority of the ‘40%’. It certainly seems that way. As an investment committee we are always reviewing these trends and opportunities, continually considering how we categorize ‘defensive’ assets. Many illiquids these days are classified as ‘growth’ given their asset base even though they behave much more like ‘defensives- and indeed, this is what investors are seeking from these exposures (strong, stable returns that are uncorrelated to the ups and downs of the equity market). …   

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Premium Investment Service (October)

In October’s Investment Committee meeting, we analysed what reflationary investments should be considered a priority and why, as the world nears peak inflation.
Reflation Trades 
It’s always darkest before the dawn. Given our expectation that inflation has peaked across many developed economies (with the notable exception of Australia) then late 2022 / early 2023 should signal the start of at first a ‘pivot’ in the degree of central bank rate increases and then a move toward cutting rates – most likely around mid-to-late next calendar year. We still have plenty of time up our sleeve but central banks cutting rates will signal the start of the new investment cycle. So, while it may still be early days yet, we need to think about what asset classes will be beneficiaries of the early stage of the next investment cycle – and to start positioning accordingly. This thematic piece aims to identify precisely which asset classes represent high conviction ‘reflation trades’ and to provide the Investment Committee with a ‘shopping list’ of possible candidates to average into over coming months. …

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Premium Investment Service (September)

In September, global investment markets experienced a rise in volatility and uncertainty. During this period the dozzi investment committee recommended changes to your portfolio which took advantage of these conditions to begin averaging into growth investments. This update incorporates our analysis of markets, inflation and the long-term road to recovery.
US CPI Deconstructed 
Unquestionably, the economic news is likely to get decidedly worse before it gets better. Still, at some point we will need to move away from our present conservative AA (asset allocation) stance and back toward a more neutral (and then aggressive) AA stance. Integral in this decision are the actions of central banks and when they are likely to start cutting (rather than raising) interest rates. Determining central bank behaviour is simpler than what a lot of market commentators would have you believe. Central banks have two prime objectives – full employment and keeping inflation low and stable. The former is certainly not a problem at the present juncture, the latter very much so. The line of reasoning is simple – if you want to know what central banks are going to do, you need to have a view on what inflation is going to do. This thematic aims to provide insight as to what we feel will be the key determining variable of market dynamics over coming months – US CPI. We apologise for the US centricity of this report but given the dominance of US capital over global financial markets, if there is one economy / one variable to focus on at the present time in guiding our AA decision-making it is US CPI…      

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Premium Investment Service (August)

In August, the dozzi investment committee met to discuss the changing economic landscape and how this may impact our current portfolio positioning. This update for August incorporates a deep dive into whether we are looking at a Bear Market Rally or the beginning of a Bull Market.

While markets will always be unpredictable, it helps to look a little deeper and separate fact from noise, while using history as a good tool for future guidance.
Bull or Bear Is This the Start of The Next Bull Market or Just Another Bear Market Rally?  
Everybody is asking the same question. Not many have a logical answer. Picking turning points is probably the most difficult task confronting any Investment Committee. With this caveat in mind, the aim of this article is to provide some observations as to what has occurred in the past for new bull markets to be established – using historical comparisons as a guide. A range of indicators across three broad criteria – availability of credit, economic conditions, and market conditions – are assessed and ranked in order of conviction. As will be seen, the odds are pointing to this being a bear market rally rather than the initiation of the next bull market. Still, you ‘never say never’ with markets – but you must be a firm adherent of a ‘this time it’s different’ view to strongly believe the worst is behind us and we can once more embrace risk assets (shares, property and the like) again….

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