There is no question that investment returns this financial year have been extremely strong. In the early weeks of the new financial year, equity markets have set and reset records and of course there is plenty of commentary around why markets and certain sectors could continue to perform strongly as well as why there may be a correction ahead.
Equity markets are often referred to as being ‘forward looking’, meaning that the market runs ahead of the current set of circumstances, pricing the future into today’s prices. This reporting season seems to confirm expectations, with companies announcing good to strong results, dividends coming back and in some cases companies paying specials; one off dividends and a number of companies giving back capital either through on-market or off-market buy-backs.
Hearing this, it could be easy to just accept that all will be good, difficult times are behind us and markets are fully informed and behaving rationally. However, in this environment, it’s a good discipline to reflect on why markets are strong and consider the fundamentals to determine if the strong performance will continue or if it’s time to adjust portfolios.
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