With so much news in the papers these past weeks, we thought this would be a good time to sit down with two of our advisers and have a chat about the political landscape, the current market noise, and of course Trump’s tariffs. Here’s a transcript from our recent conversation with Damon Bensein and Claire McGregor. If you have any questions of your own, or you’d like some more details, feel free to reach out to your adviser. They’ll be more than happy to help.

Looking at the current tariff turbulence, some investors are asking, is this time different. What are your thoughts?

Damon: I think it’s always different. That’s one thing for sure. But really, how we react and go about things doesn’t really change. If we go back, really if we look at the previous 12 months, which was calendar year 2024, it was a really good year, one of the better years historically. Across all asset classes, we saw really good gains. And then this year’s been a little bit different in a sense that we’ve seen A.I. come into play.

We’ve talked about China and perhaps you know what role they might play in that. We’ve seen the war in Ukraine. We’ve also got Trump coming in with Tariff Liberation Day. So there is actually quite a bit occurring at the moment.

And you know, all of this noise actually is what’s trying to be priced in at the moment. And that uncertainty is making markets to move around.

Claire: Yes, so you know, it’s really important that we work through how we go about dealing with that. I think what we do know for certain is that during times of volatility, having a process and a diversified asset mix and discipline, is really critical. And at Elston, we’ve got a tried and proven investment philosophy and really that centres around avoiding permanent loss of capital, following the fundamentals around the price that you pay for an investment and how that will affect your potential return. And also that, you know, it’s crucial to have genuine diversity.

Damon: Yes, diversification is critical in terms of making sure we have exposure to different markets and different sectors, but then it’s understanding what’s driving value beyond behind that and the fundamentals backing that up.

And so one of the things that has occurred over the last couple of years, and it’s quite unique, particularly from an international sense, is we’ve had seven companies really driving most of the returns.

How might Elston clients see that discipline around diversification play out?

Claire: Well, I think if you’re not disciplined around diversification, you could be exposed to concentration risk. If you look at the magnificent 7 in the U.S. – companies like Microsoft, Amazon, Apple, Tesla, etc… those companies from a relative sense, are worth more than the Australian, United Kingdom, Japanese and European markets all combined.

Damon: And we’ve seen a fair amount of distortion too. You could be forgiven for thinking that the global market is performing extremely well. But if you remove the magnificent 7 from the data, the rest of the market doesn’t look quite so magnificent. Can the magnificent 7 continue to massively outperform the rest of the market, or are there some concerns that those tech companies are overvalued? The Elston investment team doesn’t want to overpay for companies like those. At the same time they would be looking for opportunities outside the magnificent 7.

Claire: Being mindful of that concentration is important and we’re really no strangers to that in Australia. In Australia 92% of the return last year came from just six companies. So our investment philosophy has really been specifically designed to minimize that concentration risk. We know in Australia that that’s a concern just with the supermarkets, the big miners and the banks.

Damon: The other thing worth pointing out is the disconnect between returns and profits. Last year the ASX 200 produced a 12% return, and yet profit growth was down 2%.

How do you explain that?

Claire: Essentially it comes down to multiple expansion. This is when investors become more optimistic and are willing to pay more, even though there hasn’t been any real change in the underlying fundamentals.

Damon: And that’s really critical, in that, you know, part of the process is us not overpaying for things. We simply can’t justify overpaying for companies that aren’t actually growing their profits.

So for a lot of those larger companies that did well last year, particularly globally, but more so in Australia, we were owning underweight positions just because we couldn’t justify owning them from the valuation sense.

And the reason why that’s important is because when you get an unwinding of this concentration or the really high performance, those heroes from last year really start to impact returns on the downside.

The markets have been volatile. Is volatility a bad thing?

Claire: I think volatility is quite normal in markets. And when we’re talking to clients, we do try and make sure that everyone’s familiar with that.

In any given year, the market will drop on average by about 15% from where it started. But the good news is that it generally finishes at a higher point than where it started.

So potentially this is just an opportunity to reposition.

Obviously, this can feel a bit uncomfortable at times, and we need to be alert. However, it’s pretty normal market behaviour.

Damon: And that holds true over the longer term too. Over the last 30 years we’ve gone through some really extreme periods of volatility, but that on average returns are strong across the different asset classes.

So the key message is to achieve solid long term returns, diversifying your asset base and being able to withstand volatility is critical. That’s why we often say that it’s more about time in the market, rather than timing the market.

Claire: Yes, it’s really important that, you know, we stick to our guns, but also behind the scenes look at how we might position portfolios as new information become available to us.

Do you have any final thoughts you want to share?

Damon: I’d probably just reinforce that the news cycle feels like it’s been spinning faster this year. Trump is the great disruptor. He enjoys the chaos. And the news outlets love the constant flow of headlines, each one more extreme than the last.

Back away from the newspaper. Stop doom scrolling on your phone. And if you do have any concerns, certainly reach out. Always happy to help.