This week, we joined the Portfolio Construction Forum Summit in Sydney. It was an opportunity to hear from experts about the latest trends and challenges in the financial world. By the end of the conference there were 4 broad themes that had emerged from the agenda and adviser interactions and we found it interesting to juxtapose those with the conversation we had with Andrew Hunt shortly after:

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Inflation Interest Rate Outlook

While this didn't quite dominate the discussion like it has in recent years it remained the most discussed topic. Views differed somewhat pace and trejactory of the current disinflationary trend but there was general feeling that inflation would stabilise around 2.5-3% in major economies. There was the odd comment about inflation coming back with a vengeance, in a re-run of the 1970's when Arthur Burns may have been influenced by Nixon to pursue an expansionary policy in man election year.

US Elections

This was the next most discussed topic but is seen as something that will be more positive than negative neither likely candidate being a fiscal hawk, in fact fiscal latitude is the one of the things that they agree on, along with hawkishness on China. These 2 'facts' taken together mitigate against one of the other underlying themes in the conference - humbleness in the face of uncertainty and skepticism around ability to forecast near tern events given how, especially in the last 2 calendar years, consensus as been so strong, and wrong. It strikes us that actually there is again in fact a strong consensus again and this explains some of the markets current bullishness (helped by AI driven earnings results of course) and pessimism around China. Certainly Andrew's take on this year is consistent with his narrative (including imminently strong fiscal spending in Q2) but where he becomes more strident is in the risks to inflation, fiscal constraints and monetary trends by the endow 2024 and into 2025. The theme of the conference was "History does not repeat, but it rhymes!" This resonates a little too much and we are cognisant that markets look forward. We wonder when this will become an issue and whether it might be before the end of the year.

Equity Opportunities

There was a broad consensus that there's more to the stock market beyond benchmark-dominating mega caps. However, conviction amongst the myriad of fell notably short of shorting or even underweighting this theme. The more interesting implication though is that the Magnificent 7 moniker is breaking down and there is question mark about who the AI beneficiaries really are given how quickly things Sare involving. There ismore work for us to do on that but it is also interesting that many investors are converging on valuation driven cyclical opportunities in smaller companies and emerging markets (ex-China of course!) A propos we will be recording a video with an emerging markets manager next week that pushes back quite strongly on the current China narrative. Trust us this one is going to be interesting form what we have seen so far.

Evaluating Private Market Exposures

As usual there was quite a lot of debate over how to assess private market investments given how they are valued compared to public stocks. In our conversation last week Andrew again highlighted concerns about potentially excessive risk taking in private credit markets right now. This resonates with our view that much of the very diverse private credit universe may well be what bond traders would call 'money good' (you will get your money back) but we also have to work out where the fault lines are because product providers, understandably perhaps, are not very forthcoming. That means being very selective and it means doing due diligence on underlying private deals that is commensurate with thier complexity. That is more difficult than it looks at the moment and it is a lot of work.

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So overall we feel that these themes all  raise more questions than answers and we have quite a lot to work on! In the first instance JT and JR will be presenting a more in-depth analysis of individual presentations at the conference in next week's video.