Navigating Market Uncertainty
Market Update
| February 14, 2025
Profusion’s Approach to Recent Volatility
We understand many clients may be concerned about recent reporting and market fluctuations following the new US administration’s policy announcements and the potential for increased trade tensions and other geopolitical risks.
These concerns are entirely natural, and we’d like to take a moment to address them while sharing Profusion’s perspective on the current situation.
Current Market Context
Recent weeks have indeed been characterised by volatility, with markets reacting to several key developments:
- The US Federal Reserve held rates steady in January, adopting a somewhat hawkish tone as economic data remained stronger than expected
- The new US administration implemented several executive orders and proposed tariff policies affecting Canada, Mexico, and China amongst others, creating uncertainty about potential trade tensions
- The Australian market has experienced a modest correction in recent weeks, with the ASX 200 declining from around 8,600 to 8,200 as of 4 March (approximately 5%)
- Competing AI developments from China briefly unsettled the US tech sector
Despite these short-term movements, it’s worth noting that the ASX 200 remains relatively flat for the 2025 calendar year to date. While headlines might suggest dramatic shifts, the actual market movements remain within normal ranges of volatility.
Profusion's Goals-Based Approach
Uncertain periods like this are precisely why Profusion’s investment philosophy is built on a goals-based approach. Our strategy is specifically designed to provide stability during uncertain periods.
Time-Horizon Matching
We structure your investments to match your specific time horizons, with:
- Short-term needs (0-5 years) held in cash and highly liquid defensive assets
- Medium-term needs (5-10 years) allocated to a diversified portfolio design to maximise the chances of being positive over 5-year periods
- Long-term goals (10+ years) allocated to growth-oriented assets
Protection from Sequencing Risk
By ensuring your near-term financial needs aren’t exposed to market volatility, we protect you from having to sell investments during temporary downturns.
Strategic Diversification
Last year, we proactively shifted significant allocations away from US large-cap exposures toward emerging markets and small-cap companies. This adjustment was made specifically to reduce concentration risk and capitalise on relative valuation and mean reversion opportunities.
Value-Conscious Investing
Following our principle of “owning investments at sensible prices,” we maintain disciplined focus on valuation. We only hold assets considered underpriced or reasonably valued relative to their long-term averages and appropriate time horizons. In long term portfolios we are open to pursuing opportunities tactically if there a significant dislocation in markets eventuates in the coming months.
Perspective on Trade Tensions
While concerns about US led trade relations are valid, it’s important to remember that markets have weathered similar tensions before. Several factors warrant consideration:
- Central banks globally have demonstrated they’re prepared to support economic stability
- Australian inflation has moderated, with trimmed mean CPI finally breaking into the RBA’s target range
- The domestic economy continues to show resilience with a strong labour market
- Market reactions to policy announcements often moderate as implementation details emerge
Looking Ahead
Rather than attempting to time markets based on geopolitical headlines, our approach focuses on maintaining appropriate asset allocations aligned with your personal financial goals and time horizons. We actively re-balance portfolios to capitalise on relative valuation opportunities, which history shows adds significant value over time.
Rest assured that your portfolio has been constructed with market fluctuations in mind. The defensive components of your investments are specifically designed to provide stability and income during volatile periods, while growth assets are positioned to benefit from long-term compounding from being invested in markets.
If you have specific concerns about your personal financial situation or would like to review your goals and investment strategy, please don’t hesitate to contact our office.
Thank you for your continued trust in Profusion
