• Applications are now open for the new Polen Capital Global Small and Mid Cap Fund Apply now.

Rebalancing a portfolio in a volatile market


Rebalancing a portfolio in a volatile market

As the sharemarket gyrates around record highs, it is easy to conclude that risks are low. In fact, if a simple market truth is observed – that the higher the price you pay, the lower your return – then it must be true that as the market registers new highs, conditions are riskier.

For the past 37 years global interest rates have been declining and Australia has not been immune. And since the global financial crisis central banks have ensured that rate cutting has accelerated to zero, and in some cases, lower.

To understand where we are it is important to be in possession of two frameworks: the first is how booms begin and turn into bubbles that burst; the second is to understand the maths of valuing assets.

In almost every case a boom begins on the foundation of a legitimate expectation for future growth. The current boom in technology is a case in point. It probably began with private equity billionaire Marc Andreessen’s article, ‘Why Software Is Eating The World’, in The Wall Street Journal in August 2011.


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Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Hi Roger,

    I agree with raising cash at this time in the market as does Buffett! Can you please shed some light in your recent small cap fund being invested at around 92/93% in the first week that it traded?

    Thanks in advance, Debra

    • The idea is that you, as an investor, will determine the appropriate amount to allocate to The Fund, knowing that it will always be fully invested. We also acknowledge that there are many ways to successfully invest and the small companies fund mandate is different to The Montgomery Fund’s. While the Montgomery Fund may hold cash, the Montgomery Small Companies Fund’s mandate is to be fully invested.

  2. Hi Roger

    Your comment to “Buy businesses that can grow their income, rather than those that are paying the highest yield today” makes a lot of sense, but most Investors do the opposite and go for the higher yielding stocks that offer no or little yield growth as they don’t take a long term view.

    In the current low interest rate environment, Australian Companies paying a FF Dividend Yield of 4% (Grossed up 5.7%) and which have the potential to grow that Yield at the rate of inflation (but ideally at twice the rate of inflation or more ) seem to be in the sweet spot and are attractive propositions. The hard part is identifying those Businesses that can sustain a growing Dividend yield as over time Businesses mature and struggle to grow. Soul Pattison is one Company that comes to mind that has grown it’s Dividend over a very long period, but based on it’s current share price does not yield 4% FF, but if the share price was to fall to 25 times prospective Dividend then it would become attractive.

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