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19 Dec 2022 - Trip Insights: United States
16 Dec 2022 - Hedge Clippings |16 December 2022
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Hedge Clippings | Friday, 16 December 2022 As 2022 drags to an end, it's worth taking a backward glance at the year just (almost) gone, if for no other reason than to try to fathom out what's in store in 2023. Hindsight being a wonderful thing, the backward glance is a much easier task than the crystal ball, but let's see how we go. The year has been dominated globally by two major occurrences - Russia's invasion of Ukraine, and an outbreak of inflation. Neither were widely anticipated by the vast majority of us, although no doubt political and security analysts perhaps had an inkling of the potential for Putin to upset the order of things. While the situation on the ground in Ukraine has been catastrophic, the economic effects have impacted the world at large, including a significant increase in energy costs, and as a result inflation. However, inflationary pressures were already building, and even if central banks around the world saw it coming, they were slow to act on it. Enter COVID - although to be fair 2022 was the third year that COVID-19 had dominated the world, and wreaked its own havoc. The difference this year has been the opening up of the global economy post the COVID induced lockdowns, with the exception of China where XI went in the opposite direction. Supply chain issues, a tight labour market, pent up consumer demand (thanks in part to a massive build up of government support), zero to negative interest rates, and seemingly unstoppable speculative markets all intertwined to create the perfect inflationary storm. As noted above, central banks were generally slow to react with higher interest rates, with the RBA no exception, but equally, not alone in doing "too little, too late". Looking forward there are some signs that inflation (in the US in any event) may have peaked, but that's largely as a result of oil falling from over US$120 per barrel mid year to circa $70 in December. And the US FED's Jerome Powell made it abundantly clear overnight that a slight dip in inflation in the short term isn't going to change their objective of getting it back into the 2-3% range. Which brings us to next year. The war in Ukraine shows no signs of ending - so much for a temporary military exercise! A recession in the UK is a forgone conclusion (if not already a reality), and there's a widespread view that the only way US inflation gets back to the 2-3% target is by inducing a recession there as well. The influential Economist magazine says a global recession in 2023 is "inevitable" and notes that the editors of the Collins English Dictionary have declared "permacrisis" to be their word of the year for 2022. In case you're not familiar with the word, it is defined as an "an extended period of instability and insecurity", which as the Economist notes, "is an ugly portmanteau that accurately encapsulates today's world as 2023 dawns." A quick Google search of "is a recession inevitable" will give you 6.6m references or links, although time and space (plus the fact that unless you're an economic weirdo you'll get bored after the first few) precludes us from adding any more in Hedge Clippings. That's pretty sobering language on a global view, but what of our rather large southern portion of the globe? We haven't been immune to inflation, or to most, if not all, the issues noted above. Of course we have also been on the outer with China, who have their own set of issues to deal with. However, we are, as ever, the "lucky country" even if it might not seem that way, given the events of the past two or three years. As such, there'll always be opportunities, and fund managers and their funds able to make the most of them. This week we include a video interview with Rob Gregory from Glenmore Asset Management, whose Australian Equities Fund is one of the Top Ten Performing funds over one (7%), three (14%), and five (19%) years in the Equity Long Small/Mid Cap Peer Group, no mean feat given that the Peer Group as a whole has struggled in 2022. As Rob explains, much of his success this year can be attributed to avoiding the pitfalls, as much as picking the winners. You can see the interview below. Finally, this will be our last Hedge Clippings for 2022, unless we sneak one in next Thursday as a special Christmas treat (!). Thank you for bearing with our views, ponderings, and political biases on Friday afternoons over the past year, and we look forward to catching up again in 2023. In the meantime, best wishes and happiness to you and your loved ones for the holiday season, wherever you may be. |
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News & Insights Manager Insights | Glenmore Asset Management The energy development opportunity for European offshore wind | 4D Infrastructure Net Zero Megatrend | Insync Fund Managers November 2022 Performance News Quay Global Real Estate Fund (Unhedged) Bennelong Emerging Companies Fund Skerryvore Global Emerging Markets All-Cap Equity Fund Delft Partners Global High Conviction Strategy |
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16 Dec 2022 - Performance Report: Bennelong Australian Equities Fund
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| Manager Comments | The Bennelong Australian Equities Fund has a track record of 13 years and 10 months and has outperformed the ASX 200 Total Return benchmark since inception in February 2009, providing investors with an annualised return of 12.08% compared with the benchmark's return of 9.98% over the same period. On a calendar year basis, the fund has only experienced a negative annual return once in the 13 years and 10 months since its inception. Over the past 12 months, the fund's largest drawdown was -28.95% vs the index's -11.9%, and since inception in February 2009 the fund's largest drawdown was -30.31% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in December 2021 and has so far lasted 11 months, reaching its lowest point during September 2022. During this period, the index's maximum drawdown was -11.9%. The Manager has delivered these returns with 1.44% more volatility than the benchmark, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.69 since inception. The fund has provided positive monthly returns 91% of the time in rising markets and 17% of the time during periods of market decline, contributing to an up-capture ratio since inception of 123% and a down-capture ratio of 99%. |
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16 Dec 2022 - Insights from abroad
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Insights from abroad WaveStone Capital October 2022 WaveStone Capital's Henry Hill and Kirsty Mackay-Fisher travelled to the Northern Hemisphere, visiting a large number of companies and gaining insights on the impacts of inflation and a slowing consumer. Hear their insights and observations of the outlook for the Australian share market. |
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Funds operated by this manager: WaveStone Australian Share Fund, WaveStone Capital Absolute Return Fund, WaveStone Dynamic Australian Equity Fund |
15 Dec 2022 - Performance Report: Delft Partners Global High Conviction Strategy
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| Fund Overview | The quantitative model is proprietary and designed in-house. The critical elements are Valuation, Momentum, and Quality (VMQ) and every stock in the global universe is scored and ranked. Verification of the quant model scores is then cross checked by fundamental analysis in which a company's Accounting policies, Governance, and Strategic positioning is evaluated. The manager believes strategy is suited to investors seeking returns from investing in global companies, diversification away from Australia and a risk aware approach to global investing. It should be noted that this is a strategy in an IMA format and is not offered as a fund. An IMA solution can be a more cost and tax effective solution, for clients who wish to own fewer stocks in a long only strategy. |
| Manager Comments | The Delft Partners Global High Conviction Strategy has a track record of 11 years and 4 months and has outperformed the Global Equity benchmark since inception in August 2011, providing investors with an annualised return of 14.81% compared with the benchmark's return of 12.85% over the same period. On a calendar year basis, the strategy has experienced a negative annual return on 2 occasions in the 11 years and 4 months since its inception. Over the past 12 months, the strategy's largest drawdown was -9.85% vs the index's -15.77%, and since inception in August 2011 the strategy's largest drawdown was -13.33% vs the index's maximum drawdown over the same period of -15.77%. The strategy's maximum drawdown began in February 2020 and lasted 1 year, reaching its lowest point during July 2020. The strategy had completely recovered its losses by February 2021. During this period, the index's maximum drawdown was -13.19%. The Manager has delivered these returns with 1.2% more volatility than the benchmark, contributing to a Sharpe ratio which has fallen below 1 four times over the past five years and which currently sits at 1.08 since inception. The strategy has provided positive monthly returns 88% of the time in rising markets and 14% of the time during periods of market decline, contributing to an up-capture ratio since inception of 100% and a down-capture ratio of 90%. |
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15 Dec 2022 - Performance Report: Skerryvore Global Emerging Markets All-Cap Equity Fund
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| Fund Overview | Emerging markets refers to countries that are transitioning from a low income, less developed economy towards a modern, industrial economy with a higher standard of living and greater connectivity to global markets. The strategy is index unaware (meaning that the Skerryvore team decides to invest in individual stocks based on their merit and without reference to the composition of the Benchmark) and the Fund's country and sector allocations will reflect the active bottom up investment approach of the Skerryvore team. The Fund also invests in companies that are incorporated and listed in developed market countries which have economic exposure to emerging markets. The difference in allocation against any emerging markets index can be significant. |
| Manager Comments | The Skerryvore Global Emerging Markets All-Cap Equity Fund has a track record of 1 year and 4 months and therefore comparison over all market conditions and against its peers is limited. However, the fund has outperformed the MSCI Emerging Markets (MMEF) AUD benchmark since inception in August 2021, providing investors with an annualised return of -5.14% compared with the benchmark's return of -8.86% over the same period. Over the past 12 months, the fund's largest drawdown was -13.9% vs the index's -20.81%, and since inception in August 2021 the fund's largest drawdown was -17.45% vs the index's maximum drawdown over the same period of -21.92%. The fund's maximum drawdown began in September 2021 and has so far lasted 1 year and 2 months, reaching its lowest point during June 2022. The Manager has delivered these returns with 2.67% less volatility than the benchmark, contributing to a Sharpe ratio for performance over the past 12 months of -0.44 and for performance since inception of -0.52. The fund has provided positive monthly returns 100% of the time in rising markets and 30% of the time during periods of market decline, contributing to an up-capture ratio since inception of 70% and a down-capture ratio of 70%. |
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15 Dec 2022 - Carbon Regulation Review
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Carbon Regulation Review Tyndall Asset Management November 2022 Climate regulation in Australia While Australia is in line with other regions in its commitment to the Paris Agreement, in other areas Australia either lags or has less onerous requirements. While the industrial mix in Australia is markedly different from those other regions, rising political pressure will likely lead to moves by the government to close the gap. A timeline of Australian climate regulation Nov 2014 Australia's primary emission reduction policy came into force via the Carbon Farming Initiative Amendment Bill 2014, which established the Emissions Reduction Fund (ERF). The ERF is a voluntary scheme that aims to provide incentives for a range of organisations and individuals to adopt new practices and technologies to reduce their emissions. It offers Australian carbon credit units (ACCUs) to eligible activities, with one ACCU earned for each tonne of carbon dioxide equivalent (tCO2-e) stored or avoided. ACCUs can be sold to generate income, either to the government through a carbon abatement contract, or in the secondary market. This legislation followed the July 2014 repeal of the Carbon Price Mechanism. Eight 'carbon tax repeal' bills were passed by the Senate, making Australia the world's first nation to reverse action on climate change. May 2015 The Renewable Energy (Electricity) Amendment Bill 2015 came into effect. This bill reduced the large-scale Renewable Energy Target from 41,000 GWh to 33,000 GWh of additional renewable electricity generation by 2020 (or 23.5% of the estimated electricity generation for 2020), with this level to be maintained until 2030 once achieved. Aug 2015 Post-2020 emission reduction targets were announced: to reduce greenhouse gas emissions by 26-28% below 2005 levels by 2030. Sep 2015 The 2030 Agenda for Sustainable Development was adopted by all United Nations Member States. i.e. the 17 Sustainable Development Goals (SDGs). Oct 2015 The government announced a temperature commitment to keep global warming to 2 degrees Celsius compared to pre-industrial levels. Dec 2015 The government announced a target of net zero emissions by 2100. Apr 2016 Australia signs the Paris Agreement, a legally binding international treaty on climate change to limit global warming to well below 2 degrees Celsius compared to pre-industrial levels (but preferably to 1.5 degrees). The 194 signatory countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve climate-neutrality by mid-century. Jul 2016 The safeguard mechanism, part of the ERF, came into effect. This mechanism placed a legislated obligation on Australia's largest greenhouse gas emitters to keep net emissions below their emissions limit (or baseline). The safeguard mechanism operates under the framework of the National Greenhouse and Energy Reporting Scheme and applies to facilities with direct scope 1 emissions of more than 100,000 tonnes of carbon dioxide equivalent (tCO2-e) per annum. It mostly impacts mining, oil and gas extractors, manufacturers, electricity generators and the waste industry, covering approximately half of Australia's emissions. Safeguard facilities will be able to surrender ACCUs to offset emissions over their baseline. Nov 2016 The Paris Agreement became effective and was ratified in Australia. Feb 2019 The ERF is rebadged as the Climate Solutions Fund, as part of the 'Climate Solutions Package'. This package provides an additional $2 billion over 15 years for carbon abatement programs, using the same process as the ERF. Mar 2019 The safeguard mechanism is amended. Among other changes, the amendments simplify the process of allowing facilities to increase emissions in line with production. Oct 2021 The Australian government commits to Net Zero emissions by 2050. Jun 2022 The greenhouse gas emissions target for 2030 is increased from a 26-28% reduction to a 43% reduction (from 2005 levels). Global comparisons of emissions targets In the US, the target to reduce emissions by 26-28% by 2025 from 2005 levels was announced in Mar 2015. This appears to have influenced the Australian target, which was for an identical reduction but with a later (2030) target date. Comparison of carbon markets The Australian carbon credits scheme is voluntary, with demand driven by a corporate's own emission reduction targets. In the UK and the EU, a "cap and trade" system is used, whereby there is an absolute limit on greenhouse gas emissions for entities covered by the system. This cap is reduced over time to reduce total emissions. Within the system, carbon credits can be traded, allowing emissions reduction to be achieved by the lowest-cost alternative. Reporting requirements In Australia, Task Force on Climate-Related Financial Disclosures (TCFD) reporting is presently not mandatory. However, Chris Bowen (Minister for Industry, Energy and Emissions Reduction of Australia) recently confirmed that climate reporting would become mandatory. Although further details have not yet been provided, since reporting requirements in other regions are higher, it is expected that reporting requirements in Australia will increase over time, including a requirement to report scope 3 emissions. How is Tyndall responding? We expect the Labour government to increase regulation given Australia appears to lag behind global peers. The questions we are asking corporates are:
The responses to these questions, amongst others, enable us to better assess long-term cashflows and assess the risks to these cashflows under different scenarios. Author: Craig Young, Senior Research Analyst Funds operated by this manager: Tyndall Australian Share Concentrated Fund, Tyndall Australian Share Income Fund, Tyndall Australian Share Wholesale Fund Important information: This material was prepared and is issued by Yarra Capital Management Limited (formerly Nikko AM Limited) ABN 99 003 376 252 AFSL No: 237563 (YCML). The information contained in this material is of a general nature only and does not constitute personal advice, nor does it constitute an offer of any financial product. It does not take into account the objectives, financial situation or needs of any individual. For this reason, you should, before acting on this material, consider the appropriateness of the material, having regard to your objectives, financial situation, and needs. The information in this material has been prepared from what is considered to be reliable information, but the accuracy and integrity of the information is not guaranteed. Figures, charts, opinions and other data, including statistics, in this material are current as at the date of publication, unless stated otherwise. The graphs and figures contained in this material include either past or backdated data, and make no promise of future investment returns. Past performance is not an indicator of future performance. Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided. |
14 Dec 2022 - Performance Report: Cyan C3G Fund
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| Fund Overview | Cyan C3G Fund is based on the investment philosophy which can be defined as a comprehensive, clear and considered process focused on delivering growth. These are identified through stringent filter criteria and a rigorous research process. The Manager uses a proprietary stock filter in order to eliminate a large proportion of investments due to both internal characteristics (such as gearing levels or cash flow) and external characteristics (such as exposure to commodity prices or customer concentration). Typically, the Fund looks for businesses that fit one or more of the following criteria: a) under researched, b) fundamentally undervalued, c) have a catalyst for re-rating. The Manager seeks to achieve this investment outcome by actively managing a portfolio of Australian listed securities. When the opportunity to invest in suitable securities cannot be found, the manager may reduce the level of equities exposure and accumulate a defensive cash position. Whilst it is the company's intention, there is no guarantee that any distributions or returns will be declared, or that if declared, the amount of any returns will remain constant or increase over time. The Fund does not invest in derivatives and does not use debt to leverage performance. However, companies in which the Fund invests may be leveraged. |
| Manager Comments | On a calendar year basis, the fund has only experienced a negative annual return once in the 8 years and 4 months since its inception. Over the past 12 months, the fund's largest drawdown was -44.03% vs the index's -24.12%, and since inception in August 2014 the fund's largest drawdown was -45.18% vs the index's maximum drawdown over the same period of -29.12%. The fund's maximum drawdown began in November 2021 and has so far lasted 1 year, reaching its lowest point during September 2022. During this period, the index's maximum drawdown was -24.24%. The Manager has delivered these returns with 0.9% more volatility than the benchmark, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.35 since inception. The fund has provided positive monthly returns 83% of the time in rising markets and 35% of the time during periods of market decline, contributing to an up-capture ratio since inception of 54% and a down-capture ratio of 83%. |
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14 Dec 2022 - Performance Report: Quay Global Real Estate Fund (Unhedged)
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| Fund Overview | The Fund will invest in a number of global listed real estate companies, groups or funds. The investment strategy is to make investments in real estate securities at a price that will deliver a real, after inflation, total return of 5% per annum (before costs and fees), inclusive of distributions over a longer-term period. The Investment Strategy is indifferent to the constraints of any index benchmarks and is relatively concentrated in its number of investments. The Fund is expected to own between 20 and 40 securities, and from time to time up to 20% of the portfolio maybe invested in cash. The Fund is $A un-hedged. |
| Manager Comments | The Quay Global Real Estate Fund (Unhedged) has a track record of 6 years and 11 months and has outperformed the FTSE EPRA/ NAREIT Developed Index benchmark since inception in January 2016, providing investors with an annualised return of 6.11% compared with the benchmark's return of 3.5% over the same period. On a calendar year basis, the fund has only experienced a negative annual return once in the 6 years and 11 months since its inception. Over the past 12 months, the fund's largest drawdown was -22.45% vs the index's -20.72%, and since inception in January 2016 the fund's largest drawdown was -22.45% vs the index's maximum drawdown over the same period of -26.61%. The fund's maximum drawdown began in January 2022 and has so far lasted 10 months, reaching its lowest point during September 2022. During this period, the index's maximum drawdown was -20.72%. The Manager has delivered these returns with 0.55% less volatility than the benchmark, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.45 since inception. The fund has provided positive monthly returns 92% of the time in rising markets and 11% of the time during periods of market decline, contributing to an up-capture ratio since inception of 106% and a down-capture ratio of 93%. |
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14 Dec 2022 - Net Zero Megatrend
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Net Zero Megatrend Insync Fund Managers November 2022 We view Energy Transition to be among the most important megatrends affecting the investment landscape. Hydrogen is viewed as a key component of the world's quest to reach 'net zero' and avoid the worst of climate change. Hydrogen demand projections call for a 10-20x increase vs current volumes. This requires trillions of dollars of investment. Green hydrogen is produced with renewable power such as wind and solar, enabling the full life cycle of hydrogen production and consumption to be carbon free. It is one thing to identify a great megatrend but it's another thing altogether to then match this with one or more quality companies that also possess sustainable earnings growth and a superior ROIC. There are many unprofitable companies participating in the Energy Transition megatrend but we consider these to be of a more speculative nature. Our research identified industrial gas companies to be strongly positioned as they are very profitable businesses and have unique domain expertise in hydrogen and CCUS technology (Carbon Capture, Usage and Storage). The Industrial Gas market has undergone significant consolidation in the last 20 years, comprising just 3 global majors: Linde, Air Liquide and Air Products. As a result of the oligopoly style industry structure, they have delivered steady sustainable volume growth over time with consistent pricing gains. Population, GDP and industrialization of middle income markets provide a solid basis for future growth.
Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund Disclaimer |
Whilst being an attractive energy replacement for many key industrial needs, hydrogen can be difficult to handle safely and cost-effectively. Industrial gas companies possess significant domain and IP expertise in hydrogen and are heavily involved in both traditional and Energy Transition uses of hydrogen. We believe they hold prime position as key project integrators in the build out of green hydrogen infrastructure, providing decades of growth investment potential.