NEWS + VIEWS – 26/7/2024
MARKETS
Share markets pulled back this week. The start of the ‘Magnificent Seven’ earnings season failed to impress following a powerful rally that drove the US share market to record highs. Despite weaker-than-expected results from Google parent company Alphabet and Tesla, the earnings season overall is off to a strong start. According to FactSet, of the 25% of S&P 500 companies that have reported their second quarter earnings, around 80% have exceeded expectations.
Domestically, the local share market has fallen on the back of the US retreat and a sell-off in large mining stocks, due to declining copper and tin prices. The price of copper, often viewed as an economic bellwether, has hit a three-month low even after China increased support for its economy with interest rate cuts. Softer-than-expected economic data from China has also depressed iron ore prices, which have fallen around 25% so far this year.
RISK PROFILE + ASSET ALLOCATION
A risk profile is an evaluation of an individual’s willingness and ability to take on risk and helps set the allocation of investment assets in a portfolio. Of course, willingness and ability may not always match up. For example, an individual with many assets and few liabilities may be capable of taking on risk but may also be quite conservative by nature and simply not want to take on risk.
Willingness to take on risk refers to an individual’s risk aversion. A risk-averse investor is someone who says that they never want to see the value of their portfolio decline, even if that means missing out on potential gains. On the other hand, an individual may express a desire for the highest possible return and is willing to endure large swings in the portfolio value (volatility) to achieve it.
Assets fall under two main categories: defensive and growth. Defensive assets include cash and interest-bearing investments. They provide income rather than generating capital growth and are considered low risk but provide a stable return. Growth assets include Australian and international shares, property, and infrastructure. They are generally higher risk, with the potential for higher growth over the long term. The table below shows five types of risk profile and the suggested allocation of growth and defensive assets for each.
Your risk profile should be reviewed regularly as your circumstances, goals or attitude to risk may change. For example, you may find that, if you are in retirement, you would like to be invested in a more defensive portfolio. Furthermore, since the Australian share market has reached record highs, it may be time to take profits and rebalance your portfolio. With some company’s share prices having run hard in the last six months, it is important to remove emotion and remember why these stocks were bought in the first place. Diversification is key and becoming overweight in some stocks may expose your portfolio to unnecessary risk. A portfolio review will ensure that your asset allocation aligns with your risk profile.
Your risk profile can be created or updated with our risk profile questionnaire, which can be found by clicking on the link below.
COMPANY NEWS
Woodside Energy (WDS) buys Tellurian
WDS this week signed a $US1.2 billion deal to buy LNG developer Tellurian and its U.S. Gulf Coast Driftwood project. CEO Meg O’Neill plans to keep a larger-than-usual chunk of Driftwood’s production uncommitted and market it opportunistically, as opposed to the standard practice of locking it in to long-term contracts.
In second quarter results released on Tuesday, WDS reported a 4% jump in the estimated cost of its Scarborough project to $US12.5 billion, driven by modifications to the Pluto Train 1. Revenue rose 2% to $US3.03 billion from the March quarter due to timing of Pluto sales, however the gains were offset by lower energy prices. Full year production guidance of 185-195 million barrels of oil equivalent remains unchanged.
Jonathan Wood
P 0421 028 573
Important Disclaimer
The directors, employees and authorized representatives of PPN Wealth do not guarantee the information in this report to be complete, up to date, accurate nor applicable to your personal circumstances. This is general investment advice only. You should not act on recommendations in this report without discussing proposed actions with your PPN Wealth adviser to ensure recommendations are suitable to your circumstances.
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