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18 Feb 2021 - New Funds on Fundmonitors.com
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New Funds on Fundmonitors.com |
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Lumenary Global Founders Fund |
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Melior Australian Impact Fund
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Metrics Credit Partners Credit Trust
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Metrics Credit Partners Direct Income Fund
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Freehold Australian Property Fund
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Freehold A-REITs and Listed Infrastructure Fund
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Freehold Debt Income Fund
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Artisan Global Discovery Fund
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Lucerne Alternative Investments Fund (Fee Class 1)
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Lucerne Alternative Investments Fund (Fee Class 2)
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17 Feb 2021 - What's Next for Australia's Retailers?
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Chief Investment Officer, Steve Johnson, is joined by Alex Shevelev, Senior Analyst on the Australian Shares Fund, as they discuss the factors contributing to a strong start to the year for Australian retailers including JB Hi-Fi and Super Retail. Forager Australian Shares Fund Forager International Shares Fund Transcript: Steve Hi everyone and welcome. It's Steve Johnson here, Chief Investment Officer at Forager Funds, bringing you our first video for 2021. I'm joined by Alex Shevelev, Senior Analyst on the Forager Australian Shares Fund. Hi Alex, how are you? Alex Hi Steve, hello everybody. Steve It's been a bumper start to the year for Australian retailers, lots of them out early in 2021 talking about some very buoyant Christmas trading. We saw JB Hi-Fi, Super Retail, a couple of stocks that we own small positions in our portfolios such as Shaver Shop and Michael Hill pretty consistent across the retail industry, making lots of money. Alex It's been a great time to be a retailer. All that money that we saw that's not going towards international travel and a lot of the money that's coming from government stimulus is ending up in the coffers of some of these businesses and the revenue growth has been absolutely staggering for what are already some pretty large businesses. Supercheap and JB Hi-Fi group grew 23% and 24% in total revenue and that's including the fact that some of these stores were shut down for a period during that half. Steve I remember doing an analysis of JB Hi-Fi probably 10 years ago, questioning whether it could ever get to $10 billion of sales given the amount they Australians spend on electronics. But we've seen through this past period, they just keep taking market share and also the market keeps growing. The big thing though, has been profit. You talk about sales up 20%, but profit numbers are up a lot more than that. Alex In some cases they're up 80% plus and the reason here is twofold. Firstly, we've got increasing gross margins. So the retailers have managed to tick up the sales prices of their products ever so slightly relative to their costs. That might only be a couple of percentage points and you may not see it necessarily in your purchases but for a retailer that makes maybe a high single digit margin that is a really big change. Secondary to that, you've then got all those extra sales, all that extra gross margin coming through and the operating costs of these businesses have stayed largely similar. So you're getting a double benefit there. Steve I think as a well-run retailer, you might be talking sort of 6% to 8% margins at the bottom line. So as you can add 2% at the gross margin level, that's having a fairly dramatic impact on your profit. Maybe a bit counter-intuitively retailers are talking about it being difficult to get goods into the country, from China in particular, with lots of capacity constraints in shipping. It's probably been a good thing net for them because there's less competition and lots of demand and it's enabled them to put those gross margins up a little bit. Now the share price reactions have been muted using profit here up 80% and 90% on stocks that were not trading on crazy multiples to start with. Yet we've seen share prices, maybe up 5% or a bit more on the day and retracting a bit over the days after that. What's going on with the bumper results coming out way above everyone's expectations and share prices not really moving? Alex These retailers had run up to some extent already. There was already an expectation that there was going to be more revenue flowing in. However, it is higher than people expected, but that increase is limited, or appears to be limited in investor's minds, to this first half of the year and potentially subsequent couple of months. These businesses are not necessarily getting credit for this level of profitability continuing. We're going to really get to see that in the first half of next financial year, how these businesses end up relative to the half they've just had. Steve I'd probably say we agree with that. That's a sensible reaction from the market to say this is clearly unsustainable, both at a sales level, people are going to start spending money on travel and other things again, towards the back end of next year. Probably most importantly, you would assume these to come back to something more normal eventually. Alex That's right. There are some things that have changed though for some of these retailers and Shaver Shop is a good example of this. There has been a transition to online and the businesses that have really been able to seize the opportunity in online and transition some of their offline sales to online should be better positioned for that come next year. Shaver Shop for example, has seen its online sales percentage tick up from 10%, two years ago, closer to 30%. Now that's a big change for a business like that. Steve Yeah and I think you've seen some of these businesses manage that transition well. Shaver Shop is up to more than a third of its sales through its own website online. They're delivering those through the store network. But it says to me that all of that brand awareness they have, when you think I want to buy a shaver, where do you go? The money that's been spent on that over all these years is worth something. As long as you can get your offering right online, you're not actually seeing the likes of Amazon kill these businesses. In fact, they're doing quite well online. Alex That's not the only thing that's happening though. There's a secondary aspect of it and that is that this period has really been a shake up for a lot of these industries. So you've got, for example in the jewellery space, some competitors that might struggle more than the listed player Michael Hill. In that situation you might be taking sales off competitors. Eventually, like we had seen with someone like Baby Bunting, over a long period of time those competitors might fold and you might capture more of those sales. In other situations that shake up has really been a COVID affected shakeup, but with implication over a long period. So personal travel on motorcycles for example, is likely to be a bigger feature going forward as people remain a little bit hesitant of public transport, and that's really feeding into a Motorcycle Holdings result, which probably is not going to be quite as good as our bumper first half of 2021, but has a good chance of being better than the prior years as that industry is really shaken up. Steve I think people are actually underestimating how difficult the environment was for the three years leading into this COVID meltdown. Retail in Australia has been really hard. You've had costs marching up slowly while revenue has not been growing at all across the whole sector and this leakage to online going on at the same time. I think you've seen some of those businesses do a great job of consolidating in their industries and I don't think we're going back to 2019 levels of profitability. There's no doubt that this year is going to be an anomaly on the high side. But I think people are looking back and saying, well I'm going to apply a multiple of 2019 earnings. In my view, that might be a bit too conservative given where share prices are at the moment. So still some really interesting opportunities out there in the space and still a meaningful part of our portfolio. We're looking forward to hearing those and other companies give us further updates through February as our Australian portfolio reports results. Thanks for tuning in, and we'll be back with some regular updates over the next month as we get all of those results. |
16 Feb 2021 - Are risk markets entering a correction zone?
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ARE RISK MARKETS ENTERING A CORRECTION ZONE? Chris Manuell, CMT, Jamieson Coote Bonds 5 February 2021 The market adage of January being the barometer for equity market performance for the year will always get tossed around as investors outline their roadmap for the year ahead particularly coming off the historic events of 2020. The RBA may also be paying particularly close attention to the performance of the US equity market given the strong marriage of the pair since the nadir in risk markets last March. The RBA governor could become a fan of seasonals, with strong statistical evidence that the S&P 500 Index performance for the start of the year drives returns for the remainder of the year. With this in mind, the S&P 500 Index fell -1.11% (for the first month of 2021) in price terms and Deutsche Bank has studied data going back to 1872 that shows negative first months of the year have a strong impact on the performance for the remainder of the year, with 58% resulting in down years. The RBA will be very disappointed that after embarking on an aggressive QE campaign it has failed to generate the transmission mechanism into the exchange rate that it would of anticipated - an 8% rally since November 2020 would have figured deeply in the surprise move to extend QE by another 100 billion of bonds or 5 billion a week for a further six months. The currency has managed to continue on its ascent with the global liquidity pump switched on full power mode driving a strong performance in commodities markets - with iron ore 22% of our exports - and domestic data surprising to the upside as the fiscal cheque book keeps printing alongside a successful Covid-19 suppression strategy. The weakness of the USD has also played its part in providing a tailwind for the AUD which will stymie any attempts for the RBA to achieve its overly optimistic target of getting inflation consistently in the 2-3% target band. The RBA is not alone in lamenting the weakness in the USD with the ECB continuing to talk down its currency as USD strength will continue to undermine global economies' attempts to escape a post-Covid world. We monitor price action, sentiment and investor positioning as part of our rigorous investment framework and within that there are some subtle signs that indicate that risk markets may be entering a zone where they could pause or correct from their recent moves. The record short positioning in the USD is a dangerous development with the market all on one side of the boat leaving it very unstable and vulnerable to any unexpected shocks which can generate aggressive unwinding. The below chart highlights the historically stretched positioning of USD bears which will make it difficult for another secular leg lower in the USD currency as sellers become exhausted.
Source: Bloomberg The robust correlation between the AUD and risk markets is well documented and is interesting to note that the price action of late has showed some signs of that marriage starting to sour which provides investors with a salient reminder of the old risk-on/risk-off nature of financial markets and of the possibility that the text-book philosophy of interest-rate differentials may become in vogue again in 2021. The intention of the RBA to weaken the currency with its outsized bond buying program might finally gain some traction if the US/Australian yield differential reasserts its downward trend. Careful what you wish for, as a weaker Australian currency could also suggest trouble lies ahead for risk markets in general. Performance of Australian Dollar (RHS) and US Equities (LHS)
Source: Bloomberg. Past performance is not indicative of future performance.
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15 Feb 2021 - China is not going to save the world this time
CHINA IS NOT GOING TO SAVE THE WORLD THIS TIMEMarcel von Pfyffer, Arminius Capital 4 February 2021 In November 2008 a panicked Chinese government launched a stimulus package equivalent to 12% of then GDP. The package propelled China out of the GFC, but it created more problems than it solved, e.g.:
The current Chinese government is not about to repeat this mistake. Its response to the GFC has been modest, focusing on maintaining public sector investment and propping up the banking sector. Households have been left to fend for themselves, with no support payments like Jobkeeper or Jobsaver. Many small businesses have closed permanently, and many low-skilled workers and new graduates have been unable to find jobs. Households' need to draw down their savings means that, even for those who still have incomes, spending remains subdued and consumer sentiment remains cautious. The IMF forecasts GDP growth of 1.9% in 2020 and 7.9% in 2021. Although this level of growth is better than most of the world, the Chinese economy is still operating well below potential, with more downside risk than upside:
For Australia, a slowdown in the Chinese economy would be very negative. More than a third of our exports go to China, and another quarter go to China's Asian neighbours, whose economies are also linked to China. South Korea is the country that China imports most from, at US$203 billion, with Japan second at $180 billion and Taiwan third at $177 billion (although China may not agree that these are cross border flows). Just off the podium stands the US in fourth place at $156 billion, with Australia coming in sixth place at $105 billion - remembering that America started a trade war based on these figures (a mere $51 billion difference between US and Australian numbers). When viewing the trade balances (below) between China and the rest of the world we understand far better the precarious position Australia is in. Although, commodities are in finite supply around the world with only a few other countries physically able to step into the breach should China make the political decision that they would no long wish to purchase Australian commodities.
In light of current political tensions between China and Australia, and Australia's over-reliance upon China as its primary export market, policy makers and diplomats both need to ensure that their current strategies are robust enough to ensure that Australia does not also sneeze should China catch a cold.
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12 Feb 2021 - 4D's 2021 Outlook
12 Feb 2021 - RATES OUTLOOK 2021 - Getting ahead of the year ahead
11 Feb 2021 - Webinar Invitation | Premium China Funds Management
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February 2021 Webinars We would like to invite you to participate in our February webinars. We will be providing an outlook for the Asian financial markets in 2021.
Asian Equities Update Webinar Details:
Emerging Markets Fixed Income Update Webinar Details:
Presented by:
ABOUT PREMIUM CHINA FUNDS MANAGEMENT Premium China Funds Management is a boutique funds management group established in 2005 to bring Asia investment opportunities into the Australian market, in order to bridge the gap between investors' needs to internationally diversify and the suite of investment solutions available. |
10 Feb 2021 - Webinar | Laureola Q4 2020 Review
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Tony Bremness, Managing Director & Chief Investment Officer of the Laureola Investment Fund, discusses the performance of the fund over the last quarter of CY20. The Fund invests in Life Settlements. Since inception in May 2013, it has returned +16.36% p.a. with an annualised volatility of 5.60%. |
9 Feb 2021 - The Cost Of Carrying Cash
8 Feb 2021 - The pivotal fight between China and the US is over the microchip
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The pivotal fight between China and the US is over the microchip Michael Collins, Investment Specialist, Magellan Asset Management January 2021 Teaser: The campaign for dominance in semiconductors could hurt both countries. Japan's Kioxia Holdings, which in the early 1980s invented flash memory computer chips, was set for one of the country's biggest initial public offers for 2020. In September, however, the semiconductor maker reduced the asking price of its offer by 25%. Days later, the company postponed indefinitely a float that was initially set to value the company at US$16 billion. Kioxia's CEO blamed the IPO suspension on "market volatility and ongoing concerns about a second wave of the pandemic". Given that at the time the Nikkei 225 Index was close to its highest in three decades, that explanation didn't wash. Everyone knew why Kioxia halted its IPO. Anonymously sourced media reports had warned Kioxia would abandon its float because China-US tensions were reducing the company's profitability. Of note for Kioxia's fortunes, the US in August decreed that non-US companies would need Washington's permission to sell microchips made using US technology to Chinese telco Huawei Technologies and its affiliates. The talk was that Washington's restrictions on Huawei would cost Kioxia sales and lead to a global glut and thus lower prices for flash-memory products. The US restrictions on Huawei sting because China makes less-advanced microchips and relies on more-advanced US supplies. China is aware its inferior chipmakers make the country vulnerable amid the 'decoupling' between China and the US that is centred on technology. Beijing thus intends to become the best and self-sufficient in the pivotal microchip industry that is worth more than US$420 billion a year in global revenue, where half the sales are to Chinese firms. Microchips form the key battleground in the rivalry between Beijing and Washington because the integrated circuit - a piece of silicon that contains nanoscopic electronic circuits - ranks with the internal combustion engine and electricity as an invention of consequence for everyday life. The integrated circuits pioneered in 1958 by Jack Kilby at Texas Instruments when the US military was seeking a lightweight computer for the Minuteman missile's guidance system underpin so many essentials to modern life it can be said that we are in the microchip age. As Beijing and Washington see it, the country with the best 'brains of computers' will dominate biotech, business, cyberwarfare, economic, military and other fields. Both will mobilise vast financial and political resources to ensure their microelectronics industry is the world's best - and China is behind in production facilities and technical know-how in this US-private-sector-dominated industry, even if most microchips are made in US-allied countries such as Taiwan and South Korea. A microchip industry split on Sino-US lines decades after the industry established global production networks, however, will come with costs and risks for both countries and the world. For US and allied companies, lost sales to China, reduced economies of scale and lower prices mean reduced profits, less research and fewer advances in chip technology. The risk for the US is that the country will lose its commercial and military edge in chips that are heading into their third generation of semiconductor materials. China's decision to elevate microchip self-sufficiency and excellence to a national priority means that billions of dollars are destined to be spent to ensure China has the best semiconductors. The cost of this, in theory at least, is that resources are being diverted from elsewhere. Chinese businesses and consumers could face higher-priced chips than otherwise and these might still be inferior to foreign peers (just like Australia's protected car industry meant higher prices for vehicles). The overarching risk for China is that in pursuing self-sufficiency Beijing is turning towards protectionism and government direction as an economic development model. For the world, the cost of the microchip wars could entail slowed advances in almost every field, which spells opportunities and wealth forgone. Increased tensions between the world's biggest powers over this tiny technology could change the global balance of power and might turn their rivalry into hostility, perhaps over Taiwan, the world's biggest source of made-to-order chips. China, the US and the world would be better off if the microchip wars was toned down. The competition over microchips could, of course, lead to advancements that help the world. The battle over chips has been simmering for a while - Beijing, for instance, stymied Qualcomm's bid for NXP Semiconductors in 2018 for security reasons - with little harm done seemingly. The US is granting exceptions to its microchip bans to Huawei's smartphone business, so maybe the chip wars will be a phony confrontation. Chinese companies are said to be sitting on vast stockpiles of US production inventories so the sting of the US actions might be delayed and Sino-US rivalry might settle down. If the chip war were protracted and heated, the costs of the contest could be mostly hidden for society at large. Few people would be able to quantify lost advancements, reduced capabilities, higher costs than otherwise, lower speeds than otherwise and unknown alternatives forgone. So why worry? Because regions vying for self-sufficiency in semiconductors is a recipe for disrupting the global microchip industry at a time when ageing and depopulating western societies with debt-ridden economies need all the productivity boosts they can get. And the global political ramifications would be vast if China were to overtake the US in semiconductors, given the associated changeover in global power. Autarky in tech by 2035? The Chinese Communist Party in October held the 5th plenary session, or annual convention, of the 19th Communist Party Central Committee, which, along with the National Congress that appoints the committee, is one of the party's two highest decision-making bodies. The key job of the plenary session was to devise the 14th Five Year Plan (2021-2025). At the end of the session, the party issued a communiqué that unexpectedly in the title included the words "and 2035 long-term goals". The release said the party had bought forward by 14 years to 2035 the goal for China to become a rich country radiating "scientific and technological strength". (Deng Xiaoping, the leader who launched China's reforms from 1978, had previously set 2050 as the year when China would achieve "socialist modernisation", Beijing's term for parity with the US.) The plenum release said that by 2027 the country would achieve its goal of having a modern military by "strengthening the army with science and technology" by optimising "the layout of the national defence science and technology industry". To help achieve economic and military goals, the party elevated to a "strategic support" self-reliance in technology, which implicitly prioritises excellence in microchip production as a national goal under China's new 'dual circulation' economic model. This is the term for Beijing's policy of self-sufficiency in critical industries such as technology and energy that has seen it set aside an estimated US$1.4 trillion for tech by 2025. China has much to achieve in microchip expertise if it wants to surpass the US in semiconductors on this timetable. The US restrictions on Huawei, especially the curbs in May that stopped the Chinese company receiving supplies from Taiwan Semiconductor Manufacturing Company or TSMC, the world's largest chipmaker, exposed the hollowness of China's 2015-launched 'Made in China 2025' plan to dominate in future technology spheres such as artificial intelligence, biotech, driverless vehicles, fifth-generation telecommunications, quantum computing and more (and in some areas, especially 5G telecoms, China is already a leader). Without excellence in semiconductors, first marked as a Chinese priority in 2014 when Beijing set up a US$150 billion investment fund focused on chips under what was known as the Guidelines to Promote the National Integrated Circuit Industry, the wider goals are hard to achieve. Irking also for China's leaders is that much of China's supply of world-class semiconductors comes from what Beijing considers to be its rogue province of Taiwan - that's where headed the losing Nationalist side in the civil war that bought the Communists to power in 1949. TSMC, the world's best at making sophisticated chips, must heed the US restrictions because it relies on manufacturing equipment that contains US technology and the US is the largest destination of TSMC's exports. China's other major sources of memory chips are South Korea's Samsung and SK Hynix and Micron of the US. Chip products from these companies can be easily blocked by Washington too. Thus Beijing is seeking self-sufficiency. China has already invested billions of dollars to boost chip production and can boast gains. From virtually no production in the late 1990s, China produces about 15% of the world's chips now and that number could treble within five years. Semiconductor Manufacturing International Corp, China's biggest contract chipmaker usually known by its initials SMIC, and Yangtze Memory Technologies, China's first 3D NAND flash memory maker, are among Chinese companies setting goals to use local and non-US equipment in production to circumvent US restrictions. Alibaba and Baidu are investing in microchips while Huawei plans to build a microchip production plant in Shanghai. Government subsidies are reportedly encouraging many more Chinese companies to enter the industry. But there are questions over the sophistication of Chinese microchips (though not the quantity it is capable of making). US companies dominate the software that designs the most advanced chips such as sub-10 nanometre chips. US companies Applied Materials and Lam Research and ASML of Europe and Japan's Tokyo Electron dominate the production (fabrication) process for advanced semiconductors. Through these companies, the US government can control which allied countries have access to the cutting-edge technology used to design and lay out chip circuitry. It is a formidable task for China to overcome its shortfall in intellectual property but not an impossible one. One help for China is that the petering out of the corollary to Moore's Law - that chip capabilities increase due to a doubling in the number of transistors per chip every two years - might mean the gap to the US edge is shrinking. China's pledge to get better at making microchips could lead to advances that help society and the wider world. But the billions, even trillions, of dollars to be invested in an invention already more than 60 years old is only likely to lead to incremental improvements rather than breakthroughs. The money to be spent will come with 'opportunity cost', a term that economists use to describe the alternatives foregone. Sums to be spent on microchip development are amounts diverted from elsewhere. Some warn that China is reversing the opening up to the world that led to its industrialisation, an about-turn that could backfire in terms of the country's advancement. Even if China were to gain an edge over the US in chips, that feat would likely only provoke greater tensions with the US and its allies. US leadership under threat Perhaps the start of the microchip wars dates to 2017 when one of the last acts of the administration of US President Barack Obama was to unveil a strategy to secure US supremacy over semiconductors in regard to China. Congress during the administration of Donald Trump built on that proposal with legislation such as the CHIPS for America Act of 2020 and the American Foundries Act of 2020 that offered tax breaks and grants respectively to bring the microelectronics industry back to the US. Other developments of note include Washington's ever-expanding trade blacklist that specifies restrictions on Chinese organisations for aiding certain Chinese government policies. Companies ensnared include Huawei, Chinese telco ZTE in 2018 and SMIC in October last year. Other events in the chip wars extend to the US blocking the supply of sophisticated manufacturing equipment to China such as when in 2019 the Netherlands government decided not to renew the export licence for ASML's extreme ultraviolet scanner to SMIC. More still include blocked takeovers such as Washington's refusal to allow Singapore company Broadcom to buy Qualcomm in 2018 due to fears of loss of control of intellectual property. Such decisions come with costs for the US side, most obviously in lost sales for US companies. An overarching danger for the US is that the strategy backfires by costing it leadership in semiconductors. Boston Consulting Group, which estimates the US market share in chips at 45% to 50% in 2018, says US leadership is grounded in a virtuous innovation cycle. The pivotal advantage of the US is that access to global markets has allowed US chipmakers to achieve the economies of scale needed to fund huge investment in chip research and development that has consistently advanced US technology ahead of global competitors (at least until recently). Boston Consulting reckons that China's semiconductor industry (not including the manufacturing facilities built by foreign semiconductor companies in China) covers only 14% of its domestic demand. It estimates the Made-in-China-2025 plan could increase China's semiconductor self-sufficiency to about 25% to 40% by 2025, which would reduce the US's semiconductor share globally by two to five percentage points from 2018 levels. Every time Washington broadens restrictions on Chinese access to US technology, US market share loss deepens. The consultancy warns that US companies could lose 18 percentage points of global market share and 37% of their revenues from 2018 levels if the US completely bans semiconductor companies from selling to Chinese customers. Plunging revenue would force US microchip makers to slash research and investment, thereby reversing the US industry's virtuous innovation cycle. "As a result, South Korea would likely overtake the US as the world semiconductor leader in a few years; China could attain leadership in the long term," the consultancy warned. It would be a different world if China were the global leader in advanced semiconductors. And, as the experience of Japan's Kioxia shows, it could be a lesser world as China and the US fight to dominate a world defined in nanometres.
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