Investors have yet to see the bottom of the current economic and market cycle and should consider investments that are not easily impacted by market movements and offer short payback periods, according to a boutique Australian fund manager.
Talaria Capital co-chief investment officer Chad Padowitz said the usual measures that signal the bottom of share markets had not yet reached their lowest point and were unlikely to reach them for some time.
Padowitz noted the first of these measures was when leading economic indicators bottom out and the second was when central banks change to policies that support capital markets.
“Neither situation seems to be close. If normal relationships hold, there is no reason to expect leading economic indicators to trough until the second half of 2023. And central banks need to control inflation before they can even consider changing monetary policy,” he explain.
“We would note that every market bottom since 1950 has occurred within a month of one or both of these,” he said, adding that if investors kept an eye on these measures, they could anticipate a recovery in the economy and corporate earnings.
“What this does not rule out are occasional strong recoveries in share prices. Bear market rallies, when indices go up against the long-term downtrend, can be useful opportunities to rebalance.”
Talaria Capital investment analyst Max Welby said the alternative, income-focused global shares manager recommended investors focus on low beta assets when considering shares.
“Low beta is shorthand for an asset that does not move with the market and does not exaggerate market moves,” Welby acknowledged.
“The next thing is short payback periods for stocks – short duration is the term that everybody uses, but you want stocks to get money back to you quickly, which is the opposite of tech stocks where you buy cash flows far into the future.
“The final thing is that you don’t chase performance, but you do want to look at what is consistent rather than what is volatile.”
''