Below is the full unedited transcript of this interview:

0:00

Let's get right to our next guest, because he's been standing by patiently. And I do want a bit of time for this, because markets are betting that the everything rally can roll on into 2026. But we've talked about valuations already. We've talked about growth a little bit muddling. So should we be more defensive perhaps than we were last year. Isaac Poole from Ascalon Capital Drive joins me now. I do note, Isaac, that TD securities, even in the wake of that inflation read that we got this week, has now changed its forecast to expect a 25 basis point cut here in February. I mean, the world is very complex, isn't it?

0:37

It really is. Yeah. I think for the first time in several years we're seeing some real divergence across monetary policy. We have central banks in Japan with the potential for hiking. We've got here in Australia a much less clear outlook. And of course, in the US, we're now moving to a part of the cycle where there's pressures on the fed to cut rates to protect the labor force. But at the same time, inflation has remained very sticky. And that makes the outlook just that much more uncertain as we move through 2026. So,

1:16

you know, we're still expecting pretty solid US equity returns. I daresay a lot of that still has to do with the AI spend.

1:24

What is the counterargument to that?

1:28

Well, I think that the real challenge here is that growth doesn't look to be re accelerating on a broad in a broad based way across the US or globally. And it is economic growth and nominal economic growth in particular that that really drives earnings and revenue growth in the US. So I think we've got a market that's hooked on this AI spend. They love the look of the CapEx. They believe that this will drive productivity gains and that that will drive a very solid return on invested income. but that is yet to play out. The the problem is, as all of that belief and hope is, is continuing to push equities to ever higher valuations behind the scenes. Economic growth is slowing and revenue outside of these very large cap companies is slowing. And earnings growth outside of those very large companies is slowing. And so the prospect for double digit

2:27

returns in US equities again, I think has quite a bit of downside risk. It's not to say that we are going to have a recession or a very large drawdown this year. It's just that investors may need to prepare themselves for something that looks a bit more historically normal, which is mid-single digit returns over the year. So how are you positioned then at Ascalon Capital to start 2026?

2:54

We think it's appropriate to be a little bit cautious. And that doesn't mean being wildly underweight equities or wildly underweight risk, but just considering putting some resilience into portfolios. And that could be by taking a little bit of profit. After 3 or 4 years of extraordinary returns. It could be by reducing the beta to the the index buy by looking at value or quality value stocks. So there's quite a few ways you can do that within your equity sleeve. And of course the the old saying that diversification is the only free lunch. It's never been more important. And we saw that last year with China and Asia and European stocks all really contributing to world returns. And those who were heavily invested in in the US perhaps missed out a little bit there. And so this year, really focusing on diversification is going to be critical. Yeah. What is your view in terms of fixed income.

3:55

This this is an area that that again is is becoming a little bit more complex this year because monetary policy is a little less certain. We're starting to see term premia being built into parts of the curve, and I think that's true here in Australia and the US. And the expectations for deep rate cuts have started to be wound back. So everything across the US Treasury curve is starting to look a little bit more fair value where if if we went back 12 months ago it looked like a screaming buyer. Yields of the ten year were up around 5%. And that was a great opportunity to lock in yield and downside protection. Now it's it's perhaps less clear, but it's still going to be very important to have some in your portfolio, particularly when you look at corporate credit, where spreads are so tight relative to history. And the scope for anything beyond just carry has has really dissipated. So being careful and deliberate

4:55

around the types of of fixed income you put in the portfolio. This year I think will be very critical.

accumulation

Accumulation

Accumulation

Isaac sees downside risk for US equities