A path for investors through uncertainty
As investors face uncertainty on a number of fronts, Chris Paton, chief investment officer at La Trobe Financial, shares three simple strategies to navigate the turbulence.
We are only halfway through 2025, and it's already shaping up to be quite a year.
From President Trump's tariffs, to conflict in Europe, and more recently, turmoil in the Middle East, Australians can feel as though we are facing a 'wall of worry'.
The uncertainty being driven by events overseas hasn't been much fun for investors either.
After a long, steady grind up to just above 8500, the Australian S&P/ASX 200 sharemarket index plunged to 7500 in April following the US announcement of 'reciprocal' tariffs. It was the biggest market fall since the COVID crisis.
On the plus side, the Aussie sharemarket has recovered, and gone on to hit new highs, reaching 8587 in early June.
While this is good news, tariff uncertainties continue. The escalation of tensions in the Middle East, which have already driven up the price of crude oil, have likely done little to ease investor concerns.
At a macro-economic level, we believe the world is going to see the unusual combination of inflationary pressures (the result of tariffs plus higher oil prices) combined with momentarily lower economic activity as businesses pause or slow down investment and spending.
It is entirely unclear how those factors will balance out, or how long they will persist for.
In the worst-case scenario, some economists have raised the prospect of 'stagflation' (slow economic growth, high unemployment, and high inflation simultaneously), a phenomenon not seen since the 1970s following the OPEC oil price shock.
What should investors do?
In today's 24/7 news cycle, investors have plenty of market 'noise' to contend with.
This noise refers to the overload of information about short term price fluctuations, attention-grabbing headlines, even social media chatter, all of which can cloud an investor's judgment and lead to poor, emotionally-driven decisions.
The thing is, no one has special knowledge as to how President Trump's policies will land. Nor is it possible to exactly predict how various hotspots of geopolitical tension will pan out.
What investors can do is manage, or 'tune out', market noise.
The best way to achieve this is by focusing on a long term investment philosophy.
Three golden rules for uncertain times
La Trobe Financial builds investment products that are resilient to market crises by adhering to three core principles of investing:
1. Never put all your eggs into one basket
As tempting as it can be to invest in 'the next big thing', always stay diversified.
Diversification is a proven tool for dealing with market uncertainty, and it's the one true 'free lunch' in investing.
2. Keep it simple
As Warren Buffett famously said, "Investing is not like Olympic diving. There are no bonus points for degree of difficulty."
Avoid highly structured or complex investments that you cannot properly assess.
Try the 'pub test'. If you can't easily explain how an investment will make (or lose) money for you, chances are you don't have a firm grasp of the risks involved.
3. Don't be greedy
Many investment disasters occur when investors stretch for unrealistic returns.
Rest assured, getting rich slowly never goes out of fashion.
More than diversity
At La Trobe Financial, we construct our portfolios for times such as these.
Our popular Australian Credit Fund has been built around incredibly diversified portfolios of high quality, low loan-to-value, first registered mortgage-secured loans.
This approach has paid off. Investors in La Trobe Financial's 12 Month Term Account have been rewarded with consistent monthly income, full return of capital and flawless liquidity in each of the 270 months (and counting!) since the product's inception.
Our US Private Credit strategy is also built for days such as these.
Whether President Trump's tariffs remain in force, or are progressively bargained away, it's clear the US is 100% committed to the rebuilding of middle America. The La Trobe US Private Credit Fund captures this mega trend through a portfolio of directly originated, senior secured first-lien loans provided to US middle market companies, through a partnership with global powerhouse Morgan Stanley.
Or, if you would like even more diversification, and to invest via the ASX, La Trobe's ASX-listed Private Credit Fund (ASX: LF1) captures these complementary strategies by investing into the 12 Month Term Account, and the La Trobe US Private Credit Fund in the one convenient vehicle.
The outcome is that LF1 is a highly liquid investment with low upfront capital requirements. It aims for a target distribution yield equal to the Reserve Bank's Official Cash Rate plus 3.25%* per annum net of fees and costs.
It could be the ideal investment to bring diversity, transparency and regular returns to your portfolio in today's uncertain world.
Remember, in easy markets, all managers appear to perform well, and investment returns flow easily.
It's only when the market tides go out that we get to see who is swimming naked.
That's where La Trobe Financial's 70 years of experience, long term discipline around asset quality, and liquidity management come to the fore - qualities that can be your path through uncertainty.
Disclaimer: La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321, the La Trobe US Private Credit Fund ARSN 677 174 382 and the La Trobe Private Credit Fund ARSN 686 964 312 (ASX:LF1). It is important that you consider the relevant Product Disclosure Statement (PDS) before deciding whether to invest or continue to invest in any of the funds. The PDSs and Target Market Determinations are available on our website.
*The target cash distribution yield is calculated based on the RBA Official Cash Rate as at the last Business Day of each month. The target cash distribution yield is an objective target only and may not be achieved. Any shortfall in net income generated may result in a distribution payment made out of capital invested. Future returns are not guaranteed, and a loss of principal may occur. Investors should review the Risks summary set out in Section 8 of this PDS. The first distribution is expected to be paid with reference to the period ending on July 31, 2025, with July 2025 being the first full month following the Settlement Date.
Any financial product advice is general only and has been prepared without considering your objectives, financial situation or needs.
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