Building a shock-proof investment portfolio
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What is the main topic discussed in this episode?
Hello and welcome to the Australian's Money Puzzle podcast. I'm James Kirby. Welcome aboard, everybody. Now, since the beginning of the financial year, what we've tried to do on this show is offer you a clear backdrop about basically the picture through which you're making your investment decisions. And in the last show, we heard from Tim Toohey of Yarra Capital, who was sort of outlining economic fundamentals, if you like, as to where we are just now. So imagine if you could go around the world and you could go to top conferences wherever, UK, US, you might even go to Monaco if needs be. Just to figure out where are we, right? What are the top people in market saying? The top economists, top fund managers, top money makers.
Our regular guest, Will Hamilton of Hamilton Wealth Partners has just returned basically from a tour like that. I was going to say he was on a, you know, around the world in 80 conferences. Bit of an exaggeration. That wouldn't be fair to you, Will. But, Now is the time to talk to you about, we talked and you had three outstanding takeaways, right, from that. And in a way, it is a privilege to be able to do that. So I want to talk about them today. So folks, the first thing that Will pointed out to me was that portfolio construction, right, that is the way in which you mix your investments and you have them laid out. is now the primary source of value. Now, what do you mean by that, Will? What does that mean for the average investor?
You understand it, I understand it, and it's crucial. But explain what it is and why it is crucial.
So, asset allocation are the buckets, so to speak. There's Australian equities, there's developed market equities, there's emerging market equities. Then you've got your private market allocations. So, private equity, diversified credit, maybe direct real estate, et cetera. And diverse portfolio construction is about not just, let's say, okay, I've got a portfolio So that gives me my private equity exposure. It's about building within each asset class. So you have diversification, not just amongst the asset classes, but within the asset classes.
So very broadly, like Lehman's view, is it just to be perfectly diversified?
Yes, there is that. And what we do and a lot of my competitors do is we're looking not just at the returns, but the volatility. So... within the portfolio and we get that monitored and I'm sure other firms do as well. So you're delivering those returns with less risk. So ensuring that the returns are there, but the risk to just the straight out markets or beta is less than that. And that's a really important thing. And I think that's what we're trying to achieve.
So one of the things you took away from these meetings overseas this year was that portfolio construction is the primary source of value. Now, just explain what that means, because I would have thought it was always the primary source of value. In other words, if I get up on July 1 and I say, I'm going to lift my allocation on emerging markets from 10% to 20%, and next year that pays off beautifully, then that's an example of how my allocation works. was crucial to how I returned. But can you explain more broadly what people mean when they say portfolio construction is the primary source of value? I mean, it always is. So first of all, explain how it always is. And then why has it become more important?
So the fact that asset allocation is important, because that's the drivers of your portfolio, both of your returns, but the risk you have in your portfolio. And that's absolutely key because you want to be able to capture the upside when markets go up. But when market's correct, you want to make sure that your portfolio, as I always call it, refer to it as it bends, it doesn't break. And that's really important. So, for instance, your emerging markets example is a great example because emerging markets have done extremely well. Emerging Asia has done extremely well this calendar year. But it's three stocks. It's SK Hynix, it's Samsung, and it's TSMC in Taiwan.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:10–5:58
2
What does 'portfolio construction is the primary source of value' mean for investors?
5:58–7:29
3
How should investors diversify within and between asset classes?
7:29–23:10
4
Which risks from the global AI and CapEx boom are filtering across markets?
23:10–24:37
Speakers
2 identifiedMore from The Money Puzzle
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