Portfolio construction at a Macro Level

All portfolio construction, and by that, I mean the choice of investments for clients, is focused on two levels, the macro level or the overarching investment environment and then, the micro level where I look at individual companies.

Times are always changing and with them so are investment environments and so what might be true this year might be very different next year or for the next decade. So, a lot of my time is spent researching the markets and looking to the future.

I often think of this as trying to see beyond the horizon so to speak to see what changes might be coming in the future that might impact on investments generally and then on sectors or individual companies.

Then I look for those sectors or companies where Australia excels. These are constantly changing, and it is easy to be pushed along by the headlines or the ‘manias’ that sweep the markets from time to time.

So many so-called blue-chip companies fail to pass the test of time. Consolidated Press, once a giant of the publishing industry, decimated by interfamily rivalries. Bond Corporate, once the new way of doing business, collapsed under the weight of excessive borrowings. The whole buy now pay later movement that created so many listed companies only to crash and burn. The list is endless.

So I look to sectors and industries where Australia is a world leader. The mining sector is a clear example of something that Australia does better than most, but the sweet spot of Australian mining is iron ore in the Pilbara region.

These are some of the most profitable mines in the world.

Australia’s banking system leads the world in terms of prudential controls that have stood it in good place when other banks around the world have been swept aside by reckless lending patterns of mismanagement.

Yet not all Australian banks are equal. It is the big four banks with their proven history or attracting the very best of the best in management skills and their significant exposure to Australia’s robust economy that makes them such good investments.

Finally, Australia excels in the complex manufacture of medical devices. Again, not all medical manufacturers are good investments, but the standouts are companies such as hearing implant manufacturer Cochlear, the plasma expert, CSL and ResMed, the maker of devices to ease sleep apnea.

These are the quality investments I look for in this sector.