Financial Keys - A member firm of Genesys Wealth Advisers


Key Growth Model Update

From a market perspective, the sharp revision higher of economic growth and inflation expectations on the back of vaccine effectiveness and strong government and central bank support; saw government bond yields spike from extremely low levels back up to levels seen pre-Covid in a very short period of time. The result was capital losses on government bonds, but also a very strong rotation into value and cyclically-exposed countries, sectors, and stocks which were punished in 2020 and also largely ignored by investors in the 3-5 years pre-Covid. As part of this rotation, we also saw a recovery in the fortunes of listed property and infrastructure which were treated unfairly by investors in 2020 with relatively stable earnings overall. Lastly, the Australian dollar subsided in the quarter moving within a narrow band and finishing a touch weaker as the US dollar saw some surprise strength.

From an asset allocation perspective, positive returns in the period were obtained by the overweight to global equities; and by the allocation to global listed property and infrastructure.

From an investment selection perspective, we were pleased to see strong absolute and relative return performers across the portfolio.

Within Cash & Bonds, all funds outperformed their respective benchmarks. The managers performed strongly, largely owing to their lower exposure to interest rate risk, with Franklin and Ardea particularly strong in the quarter due to their relative value positioning which even saw Ardea produce a positive return during one of the biggest bond sell-offs we’ve seen for some time.

Within Australian Equities, Allan Gray was the highlight as the manager’s value investment style saw them significantly exposed to re-opening and recovery stocks (returning 7.80% for the quarter).  In light of the market rotation into these names, Greencape produced a more than admirable result given their growth style orientation almost matching the market return. Solaris saw somewhat of a recovery, particularly in the latter parts of the quarter, but lagged the market return given its weaker relative performance in January and some detractors on the short side of the portfolio. We remain comfortable with Solaris at this time. Flinders produced both strong relative and absolute returns in the quarter, exhibiting strong stock selection and portfolio construction.

Within Global Equities, a similar story to Australian equities in terms of those managers with value investment styles and/or those managers positioned towards a cyclical recovery, namely Orbis and AB respectively, seeing strong relative performance (over 8% each total return). We also saw admirable results from both Magellan and T. Rowe Price, even though they lagged the market, given their quality/defensive and growth investment styles respectively, with strong stock selection and portfolio construction efforts meaning they didn’t fall too far behind. Insync struggled during the quarter due to the nature of market movements as the bulk of the market’s rotation into value and cyclical names was funded via profit-taking from the more expensive quality segment of the market. Insync bounced back somewhat with a positive return for the month of March. Emerging markets lagged developed markets in the quarter however Fidelity produced strong relative returns against its emerging market benchmark owing to the portfolio manager’s strong portfolio construction.

Within Property & Infrastructure, both Quay and Magellan produced strong absolute returns (6.54% and 3.05% respectively), with Quay the highlight. Both were behind their respective benchmarks as the more Covid/cyclically exposed parts of their investable universes rallied strongly. Whilst both managers had been increasing their exposure to these sectors and stocks, they maintain more diversified portfolios positioned for the longer term.

Portfolio Changes

  • Decreased allocation across the Fixed Interest asset class including AB Dynamic Global Fixed Income and PIMCO Diversified Fixed Interest.

  • Increased allocation across the Growth asset classes including Flinders Emerging Companies and Fidelity Global Emerging Markets.

  • Replace Insync Global Capital Aware Fund with Insync Global Quality Equity Fund.

Portfolio changes occurred in the quarter, with the Financial Keys Investment Committee resolving to increase the overall weighting to Growth assets by 5% in the portfolio by decreasing the exposure to Bonds/Fixed Interest by 5%. The Committee also resolved to increase the allocation to those Growth assets which are likely to benefit most including Australian small companies and global emerging markets.

As outlined in our February update, with the backdrop of improving virus outcomes – a combination of general herd immunity, vaccine rollout, use of therapeutics – it’s becoming apparent that the quantum of stimulus, both fiscal (government) and monetary (central bank), is likely to be more than required in light of economic re-opening over the course of 2021. The intention of some of the monetary stimulus is to compress yields (income) on defensive assets like cash and bonds to very low levels, so that investment decisions by governments and businesses favour growth enhancing activities whilst investment decisions made by households lead to asset price inflation thus enhancing the wealth effect (i.e. the more wealth you accumulate, the more you consume).

With that backdrop, our view was that we are going to see the provision of a significant amount of stimulus on top of the emergency stimulus provided in 2020. The intention of this stimulus was to patch any holes to allow for repair. But when the holes have all been patched, the excess stimulus ultimately finds its way into assets earning a real return (i.e. a return above inflation). That means that in 2021 we’re likely to see a significant flow of excess stimulus, and hence liquidity, find its way into a narrow set of asset classes like equities, property, and infrastructure.

Replace Insync Global Capital Aware Fund with Insync Global Quality Equity Fund

We have also changed the allocation to the Insync global equity strategy, replacing the Insync Global Capital Aware Fund with the Insync Global Quality Equity Fund. The new fund is essentially the same portfolio except that it does not contain the ‘capital aware’ feature. In line with the theme of increasing the allocation to ‘Growth’ assets, the new Insync fund has the ability to provide better returns in a positive or rising market.

Extraordinary Returns for Extraordinary Times

Now approximately 12 months on from the significant market correction experienced around this time last year, there are a number of notable investments which have provided extremely strong returns over this recovery period. We have to keep in mind that we don’t expect numbers like this very often and they only occur after a market correction. However, we note the 12 month returns ending March 2021 for some managers as follows:

Allan Gray Australian Equity Fund


Greencape Broadcap Fund 


T. Rowe Price Global Equity   


Orbis Global Equity


Fidelity Global Emerging Markets


Flinders Emerging Companies




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