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A zeal to invest in those stocks exposed to artificial intelligence (AI) and expectations for interest rate cuts propelled global equities higher. Technology stocks and Japanese shares rose 18%! The Australian dollar surged 10% against the yen. Precious metals rallied in contrast to falls across iron ore and coal. The Australian 10-year government bond yield rose to 4.38%.

 

The US economy retains its forward momentum and China is producing acceptable though unbalanced growth. More support is needed for the troubled Chinese housing sector to produce a more broad-based recovery. In June, Canada and Europe were the first to reduce interest rates (by 0.25%). By comparison, risks have risen in Australia for an interest rate increase. This is the case even with such subdued domestic growth.

 

The Beanstalk Balanced Portfolio fell over the six months, declining 3.0%. A poor performance across Australian shares accounted for the bulk of this loss.

 

Australian shares contributing to performance included Alumina (+1.1%), Origin Energy (+1.0%) and AMP (+0.8%). Australian shares detracting from performance were Fletcher Building (-1.1%), Southern Cross Media (-0.9%) and ARN Media (-0.7%).

 

The February reporting season was mixed. Cash flow was tighter and hence dividend growth was more lackluster. Companies focused on cost and efficiency. Consumers focused on the higher cost-of-living. For example, Amcor experienced weaker packaging demand as consumers responded to higher prices by upsizing to obtain a greater discount. 

 

The next six months will reward companies with healthy balance sheets that show an ability to generate strong cash flow or otherwise meaningful reductions in elevated debt positions. Consumer stocks could bounce back as stage three tax cuts come into force 1 July 2024.

 

There are some startling observations of where financial markets have settled since the unwinding of covid. One observation is the eye-watering prices paid for US-AI stocks juxtaposed with the forever recession priced into some Australian small capitalisation stocks. This observation is remarkable for the extreme value opportunity represented by many illiquid small capitalisation stocks trading on the ASX. It is also remarkable given US long dated interest rates are at risk of moving higher as bulging government debt levels begin to be priced into rates. On the balance of these risks, the former investment opportunity represents upside and the later, downside.

 

Beanstalk is focused on preserving investors’ capital and investing in opportunities where valuation is highly compelling for the risk taken. With this in mind, it may at times be necessary to take two steps back, in terms of relative performance, in order to take five steps forward over the long term.

 

The Beanstalk Balanced Portfolio has a 44% exposure to cash and fixed interest related securities combined. The portfolio is invested 45% into Australian equities and has no exposure to listed property. Fixed interest related securities sit at 8% of the portfolio. Exposure to international equities is at 11% and the portfolio retains a zero weighting to gold. Cash holdings are 36% of the portfolio.