With more rate cuts on the way, how are the pros adjusting portfolios?

With inflation finally heading in the right direction and Trump’s trade war throwing global markets a curveball, investors are laser-focused on central banks, and the RBA is firmly in the spotlight. 

A second rate cut is widely expected in May, with markets pricing in a 98% chance. So, how are the pros positioning their portfolios in a falling rate environment?

To unpack this and more, Matthew Haupt from Wilson Asset Management and Tim Johnston from Tyndall Asset Management sat down with special guest host, Matthew Kidman from Centennial Asset Management. 

In the episode, they dig into how lower interest rates influence portfolio construction, which sectors stand to benefit, and how professionals assess the impact on capital-intensive or heavily indebted companies. 

They also explore the growing importance of dividends and yield in a low-rate environment, and, of course, share one rate-sensitive stock they believe the market is currently mispricing.

If you’re looking to sharpen your strategy in a shifting rate environment, this episode is not to be missed. 

Please note this video was filmed on 23 April 2025.

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Edited transcript:

Matthew Kidman: Hello and welcome to Buy Hold Sell: Thematic Discussion from Livewire Markets. I’m Matthew Kidman. While all eyes have been on tariffs lately—“tariffs, tariffs, tariffs”—there are other themes running through the markets that fund managers are thinking deeply about. Today, we’re focusing on one of the biggest: interest rates.

Rates are starting to come down in Australia. The next RBA meeting is scheduled for May 20th, and the market is pricing in more than a 90% chance of a cut—likely 25 basis points. But just as importantly, there's talk of two or three more cuts in the second half of the year.

That could have significant implications for equities. Joining me today to discuss the impact of these potential rate cuts are Matt Haupt from Wilson Asset Management and Tim Johnston from Tyndall Asset Management.

Will we see multiple rate cuts?

Matt, I’ll start with you. The market's pricing in a fair few cuts—do you think that's realistic?

Matt Haupt: It's ambitious. A lot is already baked into the forward curve. And while I hate to bring it back to tariffs again, if we see a resolution there, some of those expected cuts could be unwound—globally and in Australia. Right now, the rate cuts are being priced in because of slowing global growth, largely tied to tariff uncertainty. If that clears, we might still see two or three cuts, but probably not four or five.

Matthew Kidman: So even with a tariff resolution, you think two or three cuts still happen?

Matt Haupt: Yes, that’s our base case. We expect a resolution—tariffs won’t go away completely, but they'll likely be walked back. Regardless, we’re heading into a cutting cycle this year, so investors should be prepared.

Matthew Kidman: Tim, what's your view? Two, three, four, five cuts?

Tim Johnston: I’m going with three. But honestly, whether it’s three or five doesn’t really matter—it’s the direction that’s key. The economy, outside of government activity, has weakened over the past 12 to 24 months. The RBA is ready to act. They’re being cautious due to uncertainty, especially in private sector labour markets, but a response is warranted.

Matthew Kidman: Do you think we’ll get a cut in May?

Tim Johnston: I believe so. The market’s confidence makes me slightly nervous, but whether it’s May or June, I think we’ll see a move soon.

Portfolio positioning for rate cuts

Matthew Kidman: Tim, are you positioning your portfolio based on this expectation?

Tim Johnston: Not directly. We try to stay forward-looking, but this has been the most anticipated rate cutting cycle in recent memory. Back in October or November 2023, after a soft inflation print in the US, markets priced in seven rate cuts for 2024—and we got none. Still, rate-sensitive stocks repriced multiple times based on anticipation alone. So outside of housing-related names, I’d say many of those sectors have already priced in the cuts.

Matthew Kidman: Matt, do you agree? Is it already priced in?

Matt Haupt: Largely, yes. The market has rallied a few times on expectations that didn’t pan out. We expect a 25 basis point cut in May—not 50, because it’s hard to justify a cut that big unless the outlook is dire. We’re leaning into defensive bond proxies that haven’t fully priced in cuts yet. If global growth slows, those names will outperform.

Matthew Kidman: Right, because bond proxies benefit from lower yields?

Matt Haupt: Exactly. Many are highly leveraged, so lower rates help with financing costs and boost valuations through lower discount rates. There’s a lot to like in that environment.

Matthew Kidman: Are there companies that might benefit simply because they’re over-geared?

Matt Haupt: Not many in Australia—our corporates tend to run conservative balance sheets. But there are exceptions. Some REITs, like Scentre Group (ASX: SCG), are refinancing expensive debt from the COVID era and capturing 200–250 basis points in savings. If you can find those, they’ll benefit both from falling rates and tightening credit spreads.

Matthew Kidman:
Tim, building on that—do you see potential for consumer-focused companies to benefit from rate cuts through stronger earnings?

Tim Johnston: Yes, especially in consumer discretionary. But you’ve got two camps. Some names, like Wesfarmers (ASX: WES) or JB Hi-Fi (ASX: JBH), are fully priced or even overvalued—already repriced for cuts. Others, like Harvey Norman (ASX: HVN) or Supercheap Auto (ASX: SUL), carry more perceived risk and haven't re-rated as much. They look relatively cheap and could benefit if consumer activity picks up.

Banks and the housing market

Matthew Kidman: Let’s turn to a cornerstone of the Australian economy: banking and housing. With rates falling, can the banks continue to re-rate?

Tim Johnston: Lower rates should support housing activity and credit growth, but they also squeeze net interest margins. You can’t pass on cuts to depositors at the lower end. So overall, it's probably neutral.

CBA (ASX: CBA) remains inexplicably expensive—great management and strong performance, sure—but the premium is extreme. ANZ (ASX: ANZ) and Westpac (ASX: WBC), on the other hand, have been investing heavily in tech and systems. That should pay off in time and help close the gap to CBA.

Matthew Kidman: Matt, your view on the banks?

Matt Haupt: Same as Tim’s. Credit growth is okay, but we’re not going back to 2006–07 levels. Higher credit growth also eats into capital, so the buybacks we’re seeing won’t last. It's hard to see banks re-rating from here. They’re fairly priced, but net interest margin compression and a lack of bad debt cycle support means they’re probably a hold or even a sell.

Matthew Kidman: And will these cuts really spark a consumer spending boom?

Matt Haupt: Doubt it. Post-COVID, we saw huge fiscal support and elevated spending. With unemployment still low, it’s hard to see a new surge. Spending will likely remain flat.

Are lower rates good for equities?

Matthew Kidman: Final question before we wrap—are lower rates good for equities?

Matt Haupt: It depends. Lower rates with economic growth—that’s the sweet spot. Without growth, not so much.

Matthew Kidman: Tim?

Tim Johnston: All else equal, rate cuts are positive for equities. But again, it depends why we’re getting them. If it's due to a weak economy and that’s not fully priced in, then no. But right now, I think earnings expectations are reasonable. Good news will be welcomed.

Stock picks

Matthew Kidman: Let’s finish with a stock pick—what’s one interest rate-sensitive name you like?

Tim Johnston: Vicinity Centres (ASX: VCX). They own high-quality shopping centres and are upgrading their portfolio by selling off lower-tier assets and reinvesting in top-tier centres like Chadstone and Chatswood. That should drive rent growth and improved earnings, which the market hasn’t priced in yet.

Matthew Kidman: Matt?

Matt Haupt: Atlas Arteria (ASX: ALX). Formerly seen as the “bad Macquarie,” but the assets—toll roads in France and the US—are solid. We expect the ECB to keep cutting, and the French government may grant a toll extension, boosting the asset’s value. There’s also a large natural buyer, IFM, creeping on the register. It’s well-positioned to benefit.

Matthew Kidman: Well, it looks like lower rates are on the way—and while our guests aren’t jumping for joy, they agree there’s opportunity if you know where to look. Mortgage holders can breathe a little easier, and maybe—just maybe—equities get a lift.

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