Australian fund managers are strategically re-positioning their portfolios, anticipating the Reserve Bank of Australia’s widely expected interest rate hike this week. Major banks, including Westpac and UBS, forecast the RBA will lift the cash rate to 4.35 per cent on Tuesday, marking the third increase this year. This comes as the central bank grapples with inflation, which stood at 3.5 per cent last week, well above its target, a situation exacerbated by global events. The bond market is already pricing in at least two more rate rises before Christmas, contributing to the S&P/ASX 200 Index’s mere 0.1 per cent gain this year, significantly trailing global peers.
Amid this backdrop of higher inflation and softer growth, fund managers are seeking safety in more defensive areas of the sharemarket. Alphinity client portfolio manager Elfreda Jonker noted a cautious outlook, prompting increased exposure to companies like Insurance Australia Group (IAG). Insurance Australia Group is an Australian multinational insurance company that underwrites general insurance products including motor, home, and commercial insurance. Insurers tend to benefit from higher rates as they hold substantial cash and bond reserves that generate greater income. Similarly, Datt Capital’s Emanuel Datt is bullish on life insurer ClearView Wealth, also citing benefits from its fixed income portfolio.
Other sectors attracting attention include gold miners, particularly if Australia faces a period of stagflation – high inflation coupled with weak growth. Fairview Equity Partners portfolio manager Leo Barry views this as a very good environment for gold miners due to negative real rates and central bank buying, highlighting Minerals 260. Minerals 260 is an Australian-listed small-cap gold developer focused on exploring and developing gold projects. Toll road operator Transurban, which develops, operates, and maintains toll road networks, is also favoured, as many of its road tolls are allowed to increase annually in line with inflation. Additionally, selective retailers such as Universal Store Holdings and Sigma Healthcare, owner of Chemist Warehouse, are being picked for their resilience and strong brand power amidst consumer pressures.
