|
|
|
|
Hedge Clippings | 15 May 2026 Last week, Hedge Clippings focused on the RBA's decision to raise rates, and the concerns raised by Nick Chaplin from Seed Funds Management and Renny Ellis from Arculus Funds Management that the Bank may have moved too soon when cutting rates last year, and now, thanks to inflation and energy prices, they're heaping further stress on households by returning them to their previous levels. Now we have the Budget. There is plenty in it for tax advisers, accountants and political commentators, but that is not AFM's lane. For managed fund investors, the issue is not tax detail, but the assumptions underneath the Budget, and the general thrust of the government, which is to target those with assets, or income, to find extra revenue. Our real concern is the emphasis and increased reliance on personal income tax as the major source of government revenue. Currently, this accounts for around 48-50% of total government revenue, but the AFR estimates it will rise to 54.5% by FY29-30. And you can forget the Treasurer's handout of $250 to each wage earner; this doesn't kick in until FY 2027-8, by which time the 68 cents per day will have been fully eroded by a combination of inflation and/or bracket creep. Thanks, Jim! Budgets are full of forecasts. Markets are full of people discovering which forecasts were wrong. Treasury expects headline inflation to reach 5.0% through the year to the June quarter 2026, with most of the increase attributed to higher fuel prices. It then expects inflation to decline to 2.5% by the June quarter 2027, helped by an assumed fall in global oil prices from mid-2026. Growth is forecast to slow from 2.25% in 2025-26 to 1.75% in 2026-27, before recovering to 2.25% in 2027-28. That is the soft-landing version: inflation eases, growth slows but does not break, unemployment rises gradually, and households absorb more pressure. It may prove right. It may also prove optimistic. The Budget acknowledges the outlook is highly uncertain, particularly around the Middle East conflict, supply chain disruption, and persistently high inflation. For managed fund investors, the question is not whether Treasury's forecasts are right or wrong. The better question is whether portfolios are being built as though those forecasts are guaranteed. That is where fund selection matters. If rates stay higher for longer, long-duration growth assets, listed property, infrastructure and parts of fixed income remain exposed to valuation pressure. If growth slows more sharply than expected, credit risk becomes more important, particularly in lower-rated or less liquid strategies. If inflation remains sticky, cash and floating-rate income may continue to look attractive, but investors still need to understand what risk is being taken to generate yield. Private credit is a useful example. It has become popular for good reason: investors want income, floating-rate exposure, and lower correlation to listed equities. But ASIC has identified poor private credit practices as one of its 2026 enforcement priorities, and has flagged increased retail exposure to private credit markets as a key issue. However, not all private credit is the same, depending on the way the fund is managed, spread of risk, and the underlying asset type in the fund. The Budget also points to more scrutiny of managed investment schemes, including ASIC's use of data and consultation on new data collection powers. That is no bad thing. In a tougher market, investors need more than a good headline return. They need to understand liquidity, leverage, valuation policies, concentration, volatility, drawdowns and how a fund may behave if the assumptions do not hold. The Budget's real message for investors is not hidden in the tax act which now exceeds 14,000 pages. It is in the forecasts. If inflation falls, oil prices ease, and growth holds up, the path is manageable. If not, the next twelve months may test which funds are resilient and which were priced for a forecast that was too neat. News | Insights
Prediction Markets: The next big disruption in investing? | Magellan Investment Partners April 2026 Performance News Seed Funds Management Financial Income Fund Insync Global Capital Aware Fund |
|
|
If you'd like to receive Hedge Clippings direct to your inbox each Friday |
