Fortitude Christmas Note 2022

Seasons Greetings

Well, we said ‘good riddance’ to the lockdowns of 2021 in welcoming in the new year, and we’ve thoroughly enjoyed hearing your many and varied travel stories with family and friends during 2022. More to come we hope for you in 2023 and beyond.

2022 also brought to us a fresh batch of uncertainties. China continued its lockdown policy which greatly impacted supply chains globally and, after having record ever low interest rates, we saw inflation appearing across the globe for the first time in decades. Compounding that, in late February 2022, Putin delivered a Black Swan event with the Russian invasion of Ukraine that would have, inter alia, dramatic global food and energy implications, further fuelling inflation which no doubt you would be seeing at the supermarket, filling up your tank and your quarterly energy bills. Nearly nine months in, our thoughts go out to all those directly impacted by this event, and we hope for a speedy and peaceful resolution.

We’re all acutely aware of the record rainfall we experienced across much of the east coast of Australia this year, impacting tens of thousands of people lives and livelihoods. In addition to the direct personal impacts of the floods, this has also contributed to inflation with East Coast supply of fruit, vegetables and crops reduced. We wish those families better conditions for Christmas and beyond as they rebuild their foundations.

Speaking of foundations, we are currently in a ‘new’ environment of increasing interest rates. Starting in May of this year, we’ve had to date a 2.75% increase in the RBA cash rate, a U-turn from the RBA and an increase not seen since 1994 when the cash rates moved from 4.75% to 7.5%. Many of you would remember when the RBA cash rate was a whopping 17.5% in 1990, so 2.85% cash rate, or 5% mortgage rate is the reality for now, with a further 1% increase being priced in by the markets over the next 18 months.

In this environment, we remain extremely comfortable in our core investment philosophy of long-term investing in low cost, diversified exposures to high quality Australian and International businesses which deliver a proven stable and growing tax effective passive income stream and capital growth over the long term to exceed inflation.

It is perfectly rational for asset prices to pull back from record highs given these uncertainties, with the ASX200 down 5% this calendar year and the global stock market approximately 20% down.

Amongst this backdrop, our core diversified holdings in SOL, ARG, WHF, DUI, AUI, MFF and BKW all delivered INCREASED dividends, all carrying the maximum 30% tax credit (i.e., fully franked). AFI and MIR maintained their dividend this year, and in fact throughout the pandemic.

We know you want to be heard, you want to feel safe, you want to have confidence in both your advisory team and your strategy. The dangers of single stock exposures have been magnified when we review the demise over the past 11 months of MFG, a black swan corporate experience not even the most vindictive activist could have dreamed of.

More than ever, our focus will be on our core strategy of low cost, DIVERSIFIED investments with proven, experienced, aligned management teams focussed on delivering a growing passive tax effective income stream over the long term, and capital growth over the long term to exceed these now higher levels of inflation. The core strategy works. It worked during the periods of high inflation such as the 1970’s and late 1980’s. It worked during the GFC. It worked through COVID. We remain confident you have a sound core investment philosophy that will deliver you certainty and outcomes in the years ahead. Volatility in prices over the short term should be expected, as uncertainty like what we have seen this year is a given, and price drops in quality diversified investments are events to be taken advantage of.

A huge thanks goes out to all the Team here at Fortitude for going above and beyond in 2022. We have an amazing team in Huw, Ollie, Brad, Anna, Kylie and Nathan. Nothing is a problem for these great Australians. Now more than ever we encourage you to pick up the phone to discuss any concerns you have.

We are so privileged to be working with you. We love what we do, celebrating the wins with you and working alongside you through the tough times, and we thank you for your ongoing support and loyalty. It means so much.

Have a fabulous Christmas with your family and loved ones, and we look forward to continuing working with you all in 2023. Best wishes from all the Team here at Fortitude,