Lanteri Partners Quarterly Report – December 2023

During the quarter, global central banks signalled that interest rates had peaked and turned their focus to the possibility of interest rates cuts in 2024. In response, US bond yields fell from almost 5.0% to just below 4.0%, setting the tone for other countries to follow suit. This shift prompted investors to inject additional risk in their portfolios and increase their equity exposure.

Investors brushed aside near-term challenges such as, the developing Middle East conflict, inflation levels above central bank target levels and the potential for an economic recession. Instead, markets anticipated the prospect of a declining interest rate environment, a potential catalyst for global economic growth and adding impetus to corporate earnings as 2024 plays out.

We are being well rewarded in our interest-bearing assets, alleviating the need for additional risk at present. On a risk adjusted basis, both growth assets and interest-bearing assets are offering similar total returns, thereby justifying our defensive positioning with approximately 65%-70% growth assets and is smoothing out our return profile. The Capital Preservation Balanced model yielded a positive return of +4.4% during the quarter.

Anticipating a strengthening “interest rate tailwind” and considering the historical positivity associated with US election years, we foresee an improved market performance in the latter part of 2024. As the year progresses, the combination of these factors may propel markets forward, paving the way for solid portfolio returns. Looking ahead, we remain poised to explore increased exposure to growth assets, aligning with our commitment to optimising outcomes for our clients in the dynamic landscape ahead.

We continue to shape portfolios to optimise outcomes across asset classes within our overall risk parameters. In line with this, we executed the following changes during the quarter:

• Our Investment Committee has reduced property exposure over a period of 18 months. Recently, income yields were being offset by property devaluations. In our view, the near to medium term outlook for the property sector would be a drag on our performance and as a result we sold the remaining property exposure across portfolios.
• We partially switched exposure from the Realm Short Term Income Fund and PM Capital Enhanced Yield Fund to the Metrics Direct Income Fund (currently yielding over 9.0% pa.)
• These moves will yield us a 3% p.a. extra income return, which is significant from our defensive interest-bearing investments.
• We increased international equity weightings from 16.7% to 23.0%, through further investments in GQG Global Equity Fund and Aoris international Fund. Both funds are excellent out-performers and have added value for Lanteri clients in FY2024.
• Following an unwarranted share price correction during 2023, we thought ResMed offered compelling long-term value and added it to portfolios. With expanding operating margins in the next two years, we believe profits and share price growth will exceed the market.
• In Australia, we introduced the low-cost Vanguard High Yield ETF for a diversified company exposure supported by high dividends and franking credits. In the past 5 years this investment has produced after tax returns of 12.72% p.a. for super funds.
• We have also been researching the Chemist Warehouse/Sigma proposed merger with a view to potentially taking a position at an attractive price in the coming quarter. This may represent a unique growth story over the long term.