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Apparently, Confucius did not say "One Picture is Worth Ten Thousand Words" after all. It was an advertisement in a 1920s trade journal for the use of images in ads on the sides of streetcars...

There's a healthy spread between the volatility investors are pricing in for small caps relative to large caps but high yield ("junk") spreads are near historical lows. Sticking with the small-big spread, the price/book chart is smiling back at you. Valuations for high growth companies have shot away from the pack, giving the US market an edge over Australian multiples - but with both above fair value according to Morningstar. ASX large caps have seen more upgrades than downgrades in the week leading into reporting season. We divert to look at the split of assets between generations and the affordability of housing; stablecoins becoming relevant players in the US treasuries market; China's declining population of workers; and finally volatility for "Dr Copper".

Spread between VIX (S&P 500 implied volatility) and Russell 2000 VIX (small cap implied volatility)

 

Source: Equitable Investors

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ICE BofA US High Yield Index Option-Adjusted Spread

Source: FRED (Federal Reserve of St Louis)

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Premium in US large caps' price/boom multiples is the widest in 25 years

Source: Bloomberg

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Recent multiple expansion in "high growth" (>25% YoY growth) companies

Source: Altimeter via Clinton Capital

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Forward P/E - US v Australia

Source: Ord Minnett

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Australian market trading above Morningstar's bottom-up fair value estimate

Source: Morningstar

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US market has also return to a premium v bottom-up fair value

Source: Morningstar

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More consensus upgrades than downgrades for ASX large caps over week leading into August reporting season

Source: Equitable Investors

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Share of US household assets owned by those aged 55 and above

Source: Apollo Global Management

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Distribution of Australian household net worth by age group

Source: Saul Eslake

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House price to income ratios

Source: Endeavour Equities

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Stablecoins the 18th largest external holder of US Treasuries

 

Source: The Kobeissi Letter

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China's working-age population expected to decline dramatically

Source: Apollo via Forager

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Dr Copper has turned volatile - daily price changes

Source: BoAML

August 2025 Edition

National housing values rose another 0.5% in May, bringing total growth to 1.7% so far in 2025, with every capital city in positive territory.

The market appears to be responding to recent and anticipated interest rate cuts, with auction clearance rates also picking up post-RBA's May meeting. While annual growth has softened to 3.3%, even previously flatlining cities like Melbourne and Canberra are edging back into growth.

Regionally, SA is leading the charge, up 5.8% year-to-date, while higher-end property segments in Sydney and Canberra are now outpacing entry-level growth.

With values rising across capital cities and regions, many investors are keeping a close eye on how interest rates and housing supply may influence the months ahead.

Property Values as at 31st of May 2025

Median Dwelling Values as at 31st of May 2025

Source: CoreLogic, Report, Article

July Edition

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5 Things Some Investors Get Wrong About Trend-Following - And Why It's Worth Rethinking Portfolio Resilience

Trend-following has been a cornerstone strategy for many sophisticated allocators over decades. Yet it remains surprisingly underrepresented in the portfolios of high-net-worth individuals and family offices. Why? Because common misconceptions often overshadow its proven benefits.

Below are five of the most frequent misunderstandings we hear from advisers and investors, and why it's worth taking a fresh look.

1. "Trend-following doesn't work anymore."

It's a refrain that pops up regularly: "Trend-following is dead." History tells a different story. During major market dislocations - such as 2008, 2014, 2020, and 2022 -- trend-following strategies have often been among the best performers.

The key is understanding that trend-following is cyclical, not broken. It thrives in volatile or directional markets, i.e. precisely when traditional portfolios, heavily reliant on equities and bonds, struggle.

2. "It's just chasing momentum."

This is a common oversimplification. Trend-following isn't about hype, news, or hot sectors. It's about price confirmation. Systematic, rules-based models scan global markets daily, adjusting exposures based solely on observable price trends.

This removes emotion and narrative bias from the equation, resulting in a disciplined process rather than a speculative bet.

3. "It's too volatile for wealth preservation."

Uncorrelated doesn't mean reckless. In fact, professional trend-following programs explicitly target and manage volatility.

More importantly, trend-following tends to be "long volatility", meaning it often gains when traditional assets fall sharply. This provides essential ballast in downturns, preserving capital when it matters most.

4. "It's only for commodity traders."

That was the perception decades ago, but today's trend-following strategies are far more diversified. They trade across equities, fixed income, currencies, and commodities, spanning global liquid markets.

These aren't directional commodity bets; they are dynamic, macro-driven strategies that adapt to evolving market regimes.

5. "It doesn't belong in a strategic allocation."

Some treat trend-following as purely tactical or opportunistic. The data challenges this view.

Over full market cycles, trend-following has delivered consistent positive returns, low correlation to traditional assets, and strong risk-adjusted performance -- especially in equity crises.

This makes it a powerful core diversifier for multi-asset portfolios focused on resilience.

Conclusion

At ECCM, we view trend-following not as speculation, but as a portfolio stabiliser.

It requires no forecasting or macro calls, just a robust, repeatable process to adapt as markets shift.

For investors seeking durable, long-term capital growth with reduced drawdowns, trend-following deserves serious consideration.

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The volatility currently seen in bond markets is being fuelled by a combination of macroeconomic forces. In the U.S., ballooning fiscal deficits and a new $3.8 trillion tax bill are putting upward pressure on long-term interest rates. At the same time, foreign demand for U.S. Treasuries appears to be weakening. Central banks are reducing interest rates, yet are constrained in their influence over longer-dated bonds. Meanwhile, Australia faces a decade of projected deficits of its own, and our yield curve continues to respond more to global forces than domestic settings.

These pressures are driving significant steepening in the yield curve - the difference between short- and long-dated bond yields. Steepening curves allow skilled credit managers to adjust risk exposure and capitalize on price differences.

In this environment, extending the maturity of our bond holdings has become more appealing, particularly given longer-term bonds can offer stronger price gains as they approach maturity - a dynamic we term "rolldown." At the same time, we're also seeing anomalies in credit spreads, where less sophisticated investors are prioritising yield over relative value, creating pockets of possible mispricing. This is where active management proves its worth. Passive bond funds are bound by index rules. They cannot reposition for anticipated curve moves, nor can they selectively add risk when prices dislocate.

Given the Bloomberg FRN Index is more highly rated (average AA- compared to BBB) with shorter spread duration (~two years compared to ~three), the Yarra Higher Income Fund (HIF) is well placed to outperform during risk-on periods (refer Chart 1). However, HIF's outperformance during certain risk-off periods demonstrates the potential benefits of active management. HIF outperformed the index through 2022 in an environment of both higher bond yields and credit spreads and more recently in April 2025.

Outperformance in April provides a recent example of how nimble decision-making up and down the curve may contribute to risk adjusted returns. While the FRN Index posted a negative excess return of 11bps compared to the RBA Cash Rate, HIF posted a positive 32 bps excess return despite credit spreads widening by 20-30bps over the month.

In April, we started the month expecting volatility around geopolitical events, which prompted us to lift cash levels and position our portfolios with higher overall interest rate duration. Crucially, we also implemented this with a steepening bias or, in other words, a view that long-term interest rates would rise faster than short-term rates. By focusing our exposure on the front of the curve, or short-term bonds, and being underweight long-term bonds at the back end, we were well-positioned when the long end sold off sharply while the short end remained stable.

Chart 1 - Cumulative Return - Yarra Higher Income Fund v. Bloomberg FRN Index

Source: YCM/BBG, June 2025.

In terms of stock selection, April also presented some fantastic buying opportunities for us to take advantage of spread widening and add high-quality credit exposures at discounted levels. One such name was the USD-denominated Perenti 2029 bonds, an issuer we had previously sold at tight spreads of BBSW+180bps and were able to buy back ~200bps wider (BBSW+380bps). Credit spreads have since contracted ~100bps from these wides, providing a tidy return on investment.

While our portfolio positioning has not changed markedly from 12 months ago, these two recent examples show how we're actively managing nimble, benchmark-unaware portfolios that are more 'all-weather' credit in nature. Our April performance, in which both Yarra's Enhanced Income Fund (EIF) and Higher Income Fund (HIF) posted positive absolute returns, underscores the value of our approach. Our strategy came together as a result of preparation, speed, and conviction, none of which are available to passive strategies.

Looking beyond the tactical wins, and the case for active credit is supported by the broader macro context. While spread volatility continues, outright yields in the front and mid-parts of the curve have held steady. That means the income on offer remains attractive - and investors are simply being rewarded through a different mix of risk premia. The flexibility to shift between spread and rate risk allows us to preserve capital and position for growth, depending on where the market is offering best value.

It's a powerful setup. Investment-grade credit today is offering yields that, on a 12-month view, look comparable to long-term equity market returns - but without the same drawdown risk. Across the spectrum, private credit looks less compelling: the illiquidity and default risk required to justify allocations to private credit simply aren't being compensated in this environment.

Looking ahead, we see the drivers of this opportunity set - fiscal overreach, inflation variability, and steepening curves - as persistent features of the bond market over the next 6 to 12 months. We believe this is a sweet spot for credit investing. High running yields and steeper curves, allowing active positioning across durations are compelling and signal the era of 'buy everything and wait' in fixed income is over. Today's market rewards clarity of view, agility of execution, and a willingness to lean into volatility when others step back.