CONTRIBUTORS
Matthew Davison
Managing Director, Portfolio Manager
Key Takeaways
- Systematic investing has become the default — but scale creates risks.
Crowding, higher correlations and index-driven flows are increasingly influencing price formation in Australian equities. - Factor diversification is not fail-safe.
Periods of sharp reversals and “quant winters” highlight that systematic strategies can underperform materially when regimes shift. - Passive and systematic flows can distort markets.
Price-insensitive trading and concentration in large index names are contributing to greater volatility and weaker price discovery. - Fundamental insight remains critical in identifying risk and inflection points.
Forward-looking analysis can detect deteriorating quality and changing business dynamics before they are reflected in quantitative signals. - A hybrid approach can improve portfolio resilience.
Combining systematic discipline with fundamental insight helps reduce unintended factor exposures and delivers more consistent alpha across cycles. - The next phase of portfolio construction is integration, not substitution.
Investors should consider complementing systematic allocations with active fundamental strategies that isolate true idiosyncratic mispricing
Risk warnings - Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this video.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- The strategies mentioned may invest in derivatives (index futures) to obtain, increase or reduce exposure to underlying assets. The use of derivatives may restrict potential gains and may result in greater fluctuations of returns for the portfolio. Certain types of derivatives may become difficult to purchase or sell in such market conditions.
- Investors should also be aware of the following back-test risks. The back-test results presented in this document are based on simulated performance results. Please be aware these have certain limitations. Back-tested performance returns do not represent the impact of trading. The trades in the back testing have not been executed and may not fully reflect the impact of market factors such as liquidity. The investment team no representation that any account will or is likely to achieve returns similar to those illustrated as a result of the back testing presented.
Important information
Franklin Templeton Australia Limited (ABN 76 004 835 849) is part of Franklin Resources, Inc., and holds an Australian Financial Services Licence (AFSL No. 240827) issued pursuant to the Corporations Act 2001. The ClearBridge Australian Equities Investment Team, a division of Franklin Templeton Australia Limited, is operationally integrated under the “ClearBridge Investments” global brand, alongside ClearBridge Investments, LLC (“CBI”), and other ClearBridge entities indirectly wholly owned by Franklin Resources, Inc. Distribution of this material is issued and approved in Australia by Franklin Templeton Australia Limited.
This publication is issued for information purposes only and does not constitute investment or financial product advice. It expresses no views as to the suitability of the services or other matters described in this video as to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision.
Neither ClearBridge Investments, Franklin Templeton Australia, nor any other company within the Franklin Templeton group guarantees the performance of any strategy, nor do they provide any guarantee in respect of the repayment of your capital.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
Past performance is not a guide to future returns.
The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.
The views expressed are opinions of the portfolio managers as of the date of this video and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
Some of the information provided in this video has been compiled using data from a representative account. This account has been chosen on the basis it is an existing account managed by the investment team, within the strategy referred to in this video. Representative accounts for each strategy have been chosen on the basis that they are the longest running account for the strategy. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought.
The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the securities discussed here were or will prove to be profitable. It is not known whether the stocks mentioned will feature in any future portfolios managed by the investment team. Any stock examples will represent a small part of a portfolio and are used purely to demonstrate our investment style.
The analysis of Environmental, Social and Governance (ESG) factors forms an important part of the investment process and helps inform investment decisions. The strategy/ies do not necessarily target particular sustainability outcomes.
Risk warnings - Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this video.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- The strategies mentioned may invest in derivatives (index futures) to obtain, increase or reduce exposure to underlying assets. The use of derivatives may restrict potential gains and may result in greater fluctuations of returns for the portfolio. Certain types of derivatives may become difficult to purchase or sell in such market conditions.
- Income strategy charges are deducted from capital. Because of this, the level of income may be higher but the growth potential of the capital value of the investment may be reduced.
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