Adviser-to-client template: April 2024

For financial advisers to use with clients. This document is intended to support your service proposition to clients. It is produced by our investment writers with a deliberately light tone and structure. However, these are guidance paragraphs only. It is not guaranteed to meet the expectations of regulators or your internal compliance requirements. If you wish to remove or amend any wording, you are free to do so. However, please bear in mind that you are ultimately responsible for the accuracy and relevance of your communications to clients. 

Dear client, 

Given developments in the market, I felt it was timely to update you on where matters stand regarding your portfolio.  

It has generally been a positive time for investors, with stocks especially doing well globally. That said, you may have seen a recent market setback, albeit subtle, with sentiment moving from positive back to a state of temporary worry. This is perfectly normal and setbacks are expected after a period of strength, especially given events in the Middle East doing little to calm investor fears. However, arguably the biggest change of late has been the latest inflation figures which carried some surprises. As a reminder, inflation is important because it is a key influence of interest rates. High inflation equals higher interest rates, which equals lower market sentiment; all things being equal.  

Latest updates from the Australia, US and Europe 

• In Australia, annual inflation is now at 3.6%, which is much lower than a year ago but is still higher than markets expected and above where the Reserve Bank of Australia (RBA) wants it. Interest rate cuts probable, but not to the same size or speed as previously expected. 
• US inflation readings were also hotter than expected, rising to the highest level for six months and above forecasts. This is a bigger concern, with some tipping that the Federal Reserve may need to increase rates rather than cut. 
• As an outlier, Europe anticipates a more positive setting. The central bank left rates unchanged at their latest policy meeting and it could be that they move first with cuts during the middle of the year after taming inflation.   

What does all this mean for your portfolio?  

We avoid the guessing game of where inflation and interest rates might go next, as the evidence of economists predicting it correctly is so poor. But we do watch for unwarranted overreactions and extreme valuations, creating risks and opportunities.  

Our general position is to use any periods of volatility to your advantage, where sensible. Research shows that the average investor gives up anywhere between 7% to 41% of their yearly total returns due to bad buy/sell timing decisions¹, so we want to stop this. If anything, we want to do the opposite through good decision making.  

Periods of volatility can rightfully cause some nerves among investors, but this is all part and parcel of the investing journey. By calibrating risk and keeping a healthy mix of selected equities and fixed income, as your portfolio has, we are well-placed to ride out the current uncertainty and harness advantages in the current landscape.  

Relating this to the inflation story, if inflation persists, we have assets poised for success, including exposure to value stocks. Conversely, if inflation reverts to its target and remains stable, other assets we hold such as government bonds and a broader range of stocks will also do well.  

While it’s crucial to mitigate risks, we remain of the view that this can be done without sacrificing growth. Successful investing demands planning, discipline and resilience. Our priority has consistently been to tailor your portfolio to match your risk tolerance and long-term goals. We remain on this path. By staying well-informed, upholding a diversified portfolio and adhering to sound financial planning principles, we can steadily advance towards your objectives.  

Next steps 

We do not recommend any actions resulting from the above update. Your portfolio is still well positioned for long-term wealth generation and should continue to serve its purpose. 

That said, we are always open to dialogue on the long-term potential of the assets we hold, so please reach out to us if you have concerns. Meanwhile, we remain vigilant of unfolding events and will promptly notify you if any matters demand your attention. 

Regards, 
Adviser 
 

Important Information 

As noted previously, this document is intended to support your service proposition to clients and the commentary does not constitute investment, legal, tax or other advice and is supplied for information purposes only. 

This information is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). Morningstar is the Responsible Entity and issuer of interests in the Morningstar investment funds. 

Past performance is not a reliable indicator of future performance. To the extent the information contains general advice it has been prepared without reference to an investor’s objectives, financial situation or needs. 

Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg. 

Investors should consider the advice in light of these matters and if applicable the relevant Product Disclosure Statement before making any decision to invest. 

[1] Morningstar’s Mind the Gap report is available here: https://www.morningstar.com/en-uk/lp/mind-the-gap. It finds that globally, investors lose money due to behavioural errors. The 7-41% numbers are cited as “Gap as % of Total Returns” from the 2023 report in Exhibit 4. It covers Australia, Hong Kong, UK, Ireland, Luxembourg and Singapore.

Since its original publication, this piece may have been edited to reflect the regulatory requirements of regions outside of the country it was originally published in. This document is issued by Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Morningstar’). Morningstar is the Responsible Entity and issuer of interests in the Morningstar investment funds referred to in this report. © Copyright of this document is owned by Morningstar and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Morningstar. The information provided is for general use only. In compiling this document, Morningstar has relied on information and data supplied by third parties including information providers (such as Standard and Poor’s, MSCI, Barclays, FTSE). Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns that (a) Morningstar has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Refer to our Financial Services Guide (FSG) for more information at morningstarinvestments.com.au/fsg.  Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Adviser Solutions Team on 02 9276 4550.