On the Investment Pitch in 2023 - Halftime Victories and the Second Half Uncertainties

By Andrew Sneddon, Chief Investment Officer at Brightlight

Image from Optus Sport.

As I write, Australia's Matilda's Women's footballers have just triumphed in their FIFA Women's World Cup Match against Denmark to progress to the final stage of the tournament.

After a challenging start to the tournament, the Matilda's enter the second half with a newfound optimism and rising expectations.

Investors have been on a similar journey in the 2023 year to date, with fears that inflation-taming interest rate hikes by the RBA and other major central banks will either fail to tame inflation (i.e., 'fail to score goals') or tip the global economy into recession (i.e., 'concede goals').

With inflation showing clear signs of deceleration (down to 3% and 6% per cent in the US and Australia, respectively) and recessionary signs muted in both Australia and the United States, investors in 2023 view their proverbial investment scoreboard as 1-0 ahead at halftime.

However, investors cannot yet lift the 2023 Cup in triumph. The second half is yet to play out and will likely present considerable risks.

Mary Fowler, Sam Kerr and the rewards of a balanced investment (and team) strategy.

Perhaps the greatest obstacle that the Matilda's have overcome to progress in the tournament to date has been the injury absence of both their star forwards, Mary Fowler and Sam Kerr.

Their absence left the Matilda's team somewhat unbalanced in their first two matches, with the return of star forward Mary Fowler improving team balance and results.

Balanced, active multi-asset investment strategies have traditionally helped generate a winning strategy of offence (growth assets such as shares and real assets) and defence (bonds and cash).

That said, a notable feature of the previous decade has been the limitations of a Balanced investment strategy in a zero-interest rate world of strong growth and low inflation.

Over this time, the role of defensive assets has been questioned (why invest in cash and bonds with little yield?), and inflation protection (why invest in real assets?) has often proven unnecessary.

However, in 2023 amid normalising cash rates and bond yields coupled with higher inflation, the case for a balanced investment strategy is the strongest since the 2008 global financial crisis and the zero interest rate monetary policy era.

Bond yields and cash rates offer return protection against potential recession (i.e., they offer sound defence), while shares – but even more critically real assets – can combat high inflation (i.e., they offer strong offence).

Authenticity and winning the hearts and minds of stakeholders (including your fans).

Australians don't value teams that compromise their values to win.

The Matilda's authenticity and fair play has endeared them to all Australians, in contrast to other national teams that have compromised their values (regrettably, think 'cricket ball' and 'sandpaper').

A balanced portfolio must authentically align with an investor's mission-driven goals. Authenticity versus 'Impact washing' will likely determine the difference between repeatable success and reputation-damaging failure to achieve goals.

In April, when I last wrote on the investment outlook, I noted the robust demand for state or regionally-based disability and social housing, as these investments offer stable real returns and high mission-aligned impact.

With the Federal government having recently materially increased the support to these sectors via large percentage uplifts in NDIS-backed revenues, investors will see notable boosts to their real asset returns over the year ahead.

In a competitive environment for donors and members, clear communication and differentiation from rivals remain essential, with authenticity playing a crucial role.

Will a 'tactical change' be required later in 2023 for investors to win?

In the second half of each Matilda's game, the camera has often panned to injured superstar Sam Kerr on the bench and whether she may be called on as a 'tactical change' to win the game.

Investors must remain similarly vigilant and questioning over the remainder of 2023. Inflation is slowing, but at 6% remains uncomfortably above the RBA's 2-3% target.

Unemployment remains low across major economies, but the US Fed, ECB and Bank of England have all recently continued to hike cash rates that risk being accidental catalysts for recession.

In an investor's balanced, multi-asset portfolio, there is no compelling reason to tactically change to more offence or defence at present as the upside or downside risks to investors remain broadly similar.

However, investors should continue to seek impact real assets and remain open to the need to adjust their exposures to equities, interest rates, and currency in the event of signs of 'inflation' or 'recession' becoming a rising risk for 2023-24.

In 2023, Brightlight wants to see our values-driven investors and the Matilda's achieve their goals.

What next?

If you're an investor seeking to navigate the complex investment landscape of 2023 while aligning your portfolio with values-driven goals, consider partnering with Brightlight.

With a team of experienced professionals, Brightlight can help you create tailored impact investment solutions that balance return, risk, and impact.

Reach out to Brightlight today and discover how their expertise can enhance your investment strategy for a more resilient and impactful future.