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5 Jul 2022 - What happens to disruption during a recession?
What happens to disruption during a recession? Loftus Peak June 2022 A recession is commonly defined as two consecutive quarters of real GDP decline. It is characterised by falling economic activity, increasing unemployment and decreasing consumer and business confidence: with both groups being more cautious in their spending. Investment spending also slows. The GFC, between mid-2007 and early-2009, was exceptionally bad on all of these metrics, resulting in a significant fall in share markets - the previous peaks of which were not recovered for another five years. And yet, over those same five years, many disruptive companies outperformed the S&P 500 (quite significantly in some instances). How could that be? Over the five years it took the S&P to recover its 2007 high, Netflix's share price grew +731%, Amazon +180%, Apple +164%, Alphabet +30% Source: Bloomberg Then, as now, there were a number of key disruptive trends working their way through the economy. Smartphones were becoming ubiquitous, e-commerce was in its infancy but growing strongly, online advertising was taking hold and streaming was beginning to benefit from faster download speeds. The simple answer is that the disruptive trends benefiting these companies were a greater force relative to the economic headwinds they faced. E-commerce and Amazon For many decades, retail was a story of growing concentration, housed in a physical structure of some kind, from the early day 'mom-and-pop' shops to shopping centres. However, it was the advent of the internet in the 1990s that brought with it the ability for consumers to browse and shop online, a much more convenient solution. Even with logistics networks that were not yet properly built out, e-commerce took market share from brick and mortar retail each year. E-commerce's share of retail in the US still grew at the depths of the GFC between 2007 and 2008 (3.5% and 3.6% respectively), and the trend accelerated to the point until today (aided by superior logistics networks and same day delivery). E-commerce as % of Total Retail Sales in the U.S. Source: U.S. Department of Commerce Online Advertising and Google There was also significant change underway within the advertising industry at the time of the GFC, fuelled by digitisation and the changes to consumer behaviour that it brought about. Time spent online increased, so advertisers needed to follow. This time, however, companies placing advertising had granular targeting capabilities the likes of which were never available for traditional media such as newspapers, magazines, radio and linear television. Once again, a better, more efficient solution had arrived. So while the global market for advertising declined significantly during the GFC (almost -10% in 2009), market share within the industry tells a very different story. % of Total Advertising Revenue by Category (Global)
Source: Magna Some of the more inefficient means of advertising, where reach (the number of people who saw the advertisement) was also suffering, experienced declines of almost -20% at the low of the GFC (linear TV was the only exception, largely a function of increasing - but peaking - growth in pay TV households). These types of advertising never recovered. Meanwhile, online advertising grew +5% at a time when many businesses didn't know whether they would trade the following week. Online growth did slow from +20%, but given the overall market for advertising declined -10%, it resulted in some very large market-share gains. Streaming and Netflix There was also an interesting dynamic occurring in the lead up to and during the GFC in the entertainment industry. Pay TV households in the US were still growing, but streaming was also becoming an increasingly appealing option. It was a new and better way to consume content from the largest and best studios, although often with a slight delay, but without the $100-200/month price tag of cable. That it was a better solution was often lost on those working at incumbent entertainment companies. The head of Time Warner Jeff Bewkes famously stated in 2010 that Netflix was not a threat to media companies and that it was "a little bit like, is the Albanian army going to take over the world? I don't think so." We know how that played out. During the GFC Netflix managed to grow from 7.5 million subscribers to 20 million subscribers by the end of 2010 (a respectable +39%, 3-year subscriber compound annual growth rate). Netflix Subscriber Growth from Inception to 2021 Source: Company Filings Smartphones and Apple The iPhone was launched at the beginning of 2007 and arguably kick-started the mobile revolution (although it wasn't the 'first' smartphone). The product launch came just a few months before early signs of financial stress and at a time when Nokia was king of the mobile market, with market share of almost 50%. But the iPhone was different. There was no stylus or keyboard, it provided access to the open internet in a way that smartphones of the past didn't and there was soon an app for anything and everything (especially functions previously performed by other devices). It was simply a better solution than its predecessors and it was because of this that Apple grew its iPhone sales from nothing in 2006 to 4 million in 2007 and 48 million by 2010. It wasn't just Apple iPhone sales either - smartphone sales showed significant growth, despite higher price tags and severe economic weakness: Number of Smartphones Sold to End Users Worldwide from 2007 to 2021 Source: Gartner There are many new disruptive trends happening right now that are unlikely to change course in the face of economic headwinds. Carmakers aren't going to go back to making more internal combustion engine vehicles, nor are they going to cut back on safety features like advanced driver assistance or digitised infotainment (all of which is powered by semiconductors). Business aren't going to turn back on their digital transformation plans. They certainly aren't going to cut back on their cybersecurity budgets either.
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4 Jul 2022 - Where to from here? Tips to dodge the noise
Where to from here? Tips to dodge the noise Spatium Capital June 2022 Over the years, Spatium Capital has written about and been interviewed on many topics - the Russian invasion of Ukraine, the Omicron strain, the Delta strain, lockdowns, the rise of ESG investing, Donald Trump, the yield curve inversion…the list goes on. Whilst the famous saying goes, 'there's only two certainties in life; death & taxes', we would argue there's a third overlooked certainty; perpetual worry in the financial markets. Whilst empirical evidence has highlighted time and time again that markets do rise over the long term, and that short-term dislocations are often (not always, however) the best time to invest or start a business within a given market, the ever-present knot exists within each of us - "what if we are wrong, and everything goes to ruin?" Central Banks have played a considerable role in wrapping economies in 'cotton wool' since the Global Financial Crisis (GFC) and more recently throughout the COVID pandemic - perhaps they've even appeased many knots in stomachs. As we once commented, central bank policy has evolved considerably over the last few decades to develop and implement new monetary policies that are reflective of the shifts in modern society. Evidently, the support for these policies can be seen in the outcomes. The most recent monetary responses have led to, as an economist might say, minimising 'deadweight-loss'. That being, when supply and demand are unbalanced, a deadweight loss is a cost to society. Prime examples of this were the central bank interventions during the GFC which protected many of the world's largest interconnected investment and retail banks (and their balance sheets) from triggering a domino effect of collapses and subsequent job losses. The recent COVID-19 era also saw both fiscal and monetary policy pump trillions of dollars into the system with the view to protect businesses and people's livelihoods from collapsing under the financial strain of being forced to stay home. Arguably, both of these central bank responses minimised the amount of deadweight loss in the system, despite 'true' capitalists asserting that by intervening in the natural flow of capitalism, central banks had only deferred these problems to a yet-unlived future. A problem which we appear to now be living through.
S&P 500 annual returns since 2000 - an annual return of 7.1% over the 21 years. Is it then fair to criticise central bankers for fuelling the current monetary environment, given that when they were tasked with deciding how to respond to COVID-19 (which at the time was an unknown-unknown) their most recent precedent was the GFC? Despite the material differences between both the GFC and COVID-19, both had the potential to collapse the financial system on which we all so heavily rely. So, perhaps the response was warranted. However, the current discourse seems to be arguing that central bankers have allowed 'loose' monetary policy to continue long past its due date, thus leaving society with the threat of persistent inflation, continual demand exceeding supply, and interest rate rise that may cripple those who overexposed themselves to a cheap-debt market. With the above being said, defending or recusing central bankers is not our focus nor within the bounds of where we believe we add value. Rather, we have found that as the months have become years, the one guarantee we are almost prepared to give is that when new "unknown unknowns" enter the macro news cycle, you can almost always expect an overreaction. At its inception, the unknown-unknown nature of the pandemic was so unpredictable that it was unlikely to be solved using logic or predictive algorithms. If we consider a less destructive situation, logic or predictive algorithms have a great deal of difficulty trying to predict how many meals a restaurant may serve on any given night, or what time patrons will arrive. This is because the number of variables and potential decision-tree options associated with this task is so diverse that it is almost impossible to be correct. Bringing this logic back to finance, consider how an algorithm might forecast retail, wholesale, and institutional investors' response to a black swan event such as the pandemic. If we thought dinner choices had a lot of variables, investor decision-making might just break the algorithm. Taking it a step further, now introduce the most recent geopolitical challenge, and add an Australian federal election. Central bankers may be forgiven for leaning towards the accommodative stance taken. The beauty about unknown-unknowns is that they personify disruption and despite best efforts or claims made by 'experts', none will see them coming. So, if the third certainty in life is that there will always be a perpetual worry in the financial markets, (you just need to pick the topic you want to read/worry about - as we've shown with our take on Central Banks) we have learned and encourage our readers to consider some general principles to reduce said worry:
Author: Nicholas Quinn |
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1 Jul 2022 - Hedge Clippings |01 July 2022
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Hedge Clippings | Friday, 01 July 2022 A week may be a long time in politics, and in financial markets there's an old saying that "time in the market" is important, but at the end of the day what matters to investors are returns. More relevant at the current time are lack of returns, given the S&P 500 fell just over 20% in the six months to June, down from its record peak in January. Bonds in the US have followed suit, down 10% this year, so diversification hasn't helped. News & Insights Investment environment snapshot | Laureola Advisors 10k Words | Equitable Investors Thinking about industrial (and Qantas and Netflix) | Quay Global Investors 4D podcast: explaining the country review process | 4D Infrastructure |
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1 Jul 2022 - Sectors positioned to survive inflationary times
Sectors positioned to survive inflationary times Datt Capital June 2022 Invest in inflation. It's the only thing going up. -- Will Rogers Every day we read about higher costs of food, energy and property via higher interest rates, while our pay packets don't seem to be rising as fast as the cost of living. We're being told to learn to cut back on our quality of life and to expect lower returns going forward from our investment portfolios because of ostensibly more difficult business conditions and, prima facie, higher than typical stock valuations. The spigots of 'helicopter money' opened by central banks all over the world are slowly being closed along with rising interest rates that make the traditional 'safe haven' of fixed income, riskier than recent historical experience would suggest. In addition, the spectre of war is a key risk as the probability of conflicts increases during poor economic times. What is an investor to do? In an environment of low economic growth, high inflation (a situation known as stagflation) as well as tightening monetary and fiscal policy along with geopolitical risks. A sensible thing one can do is to put more onus on tangible, hard assets versus the recent popularity (and erstwhile success) of investing in abstractions. In these adverse market conditions, we believe that it's prudent to get back to the basics. Accordingly, factors such as positive cash flow, positive real returns (post-inflation), relatively low valuation multiples, returns to shareholders via capital initiatives and strong market leadership positions we view favourably. Which asset classes will be resilient?We can use history as a guide in comparing similar environments in the past with the present day. The stagflationary environment in the 1970s is a reasonable comparable in some ways to the present day, with numerous 'oil shocks' experienced analogous to the global 'energy molecule' crisis being experienced today. The sector that experienced the best returns over this decade was the energy sector, with the worst returns coming from the technology sector. Value and small-cap assets performed best throughout the decade, with growth assets and government bonds providing the worst relative returns. Accordingly, we believe the most favour sectors to be going forward to be:
It's important to observe that recent inflation has been driven by shortages and supply chain disruptions. Rising rates are unlikely to control inflation in the short term. Inflation has been labelled the 'silent tax' as it essentially measures the fall in a currency's purchasing power. It reduces the standard of living for the majority, which has the knock-on effect of reducing economic activity and increasing the probability of a recession. Accordingly, it's imperative to invest with those stewards of capital that can outperform the rate of inflation earning a real rate of return, thereby preserving one's purchasing power and quality of life. Passive market exposure may not provide this however, we firmly believe that the appropriate actively managed funds in combination with other uncorrelated assets provide a higher probability of preserving an investor's wealth in real terms. Since August 2018, the ASX200 Total Return index has compounded at an annualised rate of 8.79% per annum. Over the same timeframe, as an example, the Datt Capital Absolute Return Fund has doubled the index return: achieving 17.73% per annum (past performance is no guarantee of future performance) at lower relative risk, despite some of the most turbulent markets in living memory. This demonstrates the importance and value of adding high performing active managers; with the ability to invest within the sectors experiencing tailwinds to a diversified portfolio as a potential hedge against inflation. Author: Emanuel Datt Funds operated by this manager: |
Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should not be construed as advice in any way. The author holds no exposure to the stock discussed |
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30 Jun 2022 - Performance Report: Equitable Investors Dragonfly Fund
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Fund Overview | The Fund is an open ended, unlisted unit trust investing predominantly in ASX listed companies. Hybrid, debt & unlisted investments are also considered. The Fund is focused on investing in growing or strategic businesses and generating returns that, to the extent possible, are less dependent on the direction of the broader sharemarket. The Fund may at times change its cash weighting or utilise exchange traded products to manage market risk. Investments will primarily be made in micro-to-mid cap companies listed on the ASX. Larger listed businesses will also be considered for investment but are not expected to meet the manager's investment criteria as regularly as smaller peers. |
Manager Comments | Software company Reckon(RKN) provided a highlight for the Fund as the company struck a deal to sell a business unit, in-keeping with Equitable's view on value and demonstrating their approach to 'bottom-up' investing focused on the opportunities presenting in individual companies. However, they noted in the absence of catalysts elsewhere, the smaller and less liquid listed investments faced broad selling pressure as sentiment was compounded by tax loss selling. Equitable Investors' view is that nothing about CY2022 has been easy for listed equities and the month of May brought on another round of share price declines as interest rates rose and investors who have not operated in such an environment since 2010 grappled with the implications. |
More Information |
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30 Jun 2022 - Fund Review: Insync Global Capital Aware Fund May 2022
INSYNC GLOBAL CAPITAL AWARE FUND
Attached is our most recently updated Fund Review on the Insync Global Capital Aware Fund.
We would like to highlight the following:
- The Global Capital Aware Fund invests in a concentrated portfolio of 15-30 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.
- Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.
- Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.
For further details on the Fund, please do not hesitate to contact us.
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30 Jun 2022 - Scarcity becomes common
Scarcity becomes common Magellan Asset Management June 2022 June 2022 Abbott Nutrition, which controls 48% of the US$2.1 billion US infant-formula market, in February recalled three product categories and closed a plant in Michigan after four babies who had consumed its powdered milk became sick with life-threatening bacterial infections even though there was no proven link.[1] By May, the US had a shortage of baby food - as in bare shelves (a nationwide out-of-stock rate of 43%),[2] panic buying, parents resorting to dangerous homemade remedies,[3] and infants hospitalised because not even doctors could obtain the specialised formula they needed.[4] That such a wealthy country has a shortage of baby food symbolises how the world is dogged by scarcity. The global manufacture and distribution of basic, essential and technological goods is muddled. The world's food supply can't get to everywhere it's needed. Countries reliant on imported energy are vulnerable. At an industry level, automobile production is hampered by a lack of parts. Industrial revenue has dropped due to a backlog of orders. Restaurant margins are under pressure. Retail is lacking stock and staff. Building is delayed. Tech companies lack the essential components. Some niche industries such as 'fast fashion' (online-clothing sales driven by Instagram influencers) face collapse. Supply is snarled for (at least) eight reasons, and the damage is magnified because many are occurring at once. The first and underlying problem is that supply lines are too precarious. One hiccup in these over-complicated, sprawling and self-organising production networks causes a shortage. Outsourcing and specialisation taken to the nth degree have meant that multinationals don't even know who are their suppliers. About 70% of 300 companies surveyed by India-based Resilinc Solutions in 2020 couldn't identify their suppliers in China just after covid-19 became apparent.[5] Adding to the mess is that an overreliance on China, just-in-time production, minimal inventory practices and high industry concentration reduce the margin of error for supplies. Even before the crisis in the four-producer US infant-formula market was apparent, a US Department of Agriculture report in February listed tackling industry concentration as "priority one" of six to strengthen the US food supply.[6] The second reason for shortages is climate change. Floods in China, heat waves in India and droughts in the US - more locally, heavy rain and not much sunshine in Queensland - mean crops are failing to enjoy the temperate weather needed for good harvests. Climate-change-related blows to food in storage (electricity failures that lead to a loss of cold storage) and damage to transport infrastructure "could significantly decrease availability and increase the cost of 22 highly perishable, nutritious foods such as fruits, vegetables, fish, meat, and dairy," the UN Intergovernmental Panel on Climate Change warned in March.[7] The other side to climate change is that its solutions are naturally hostile to investment in fossil-fuel production, and oil, gas and coal shortages loom when there is no foolproof replacement. The third reason is a scarcity of labour. Low unemployment means companies are struggling to find enough qualified workers. So firms are forced to cut production. In the US, for every two job openings in March, there was only one unemployed person.[8] A lack of workers has added to shortages when it has manifested as a disruption to transport. Think not enough truck drivers. The fourth reason is 'chipageddon', the term for a lack of microchips over the past two years because demand has outstripped global production capacity. Since a piece of silicon that contains nanoscopic electronic circuits component powers so many goods these days, the result is a shortage of everything from lightbulbs to cars to medical devices.[9] A fifth reason for shortages is the tension between China and the West that is impeding trade and investment - Intel CEO Pat Gelsinger in 2021 said Beijing-Washington strains made it hard for chipmakers to expand production.[10] As well as deterring investment, the politically driven impediments include export bans, tariffs and import quotas. Another reason for the shortages (especially of microchips) is covid-19. Lockdowns and logistic disruptions especially at ports hammered production and jammed container deliveries by ship and truck at a time when government stimulus boosted demand for goods. Freight costs rose so much companies such as Costco, Home Depot, Ikea and Walmart found it cheaper and more reliable to hire ships. China's 'zero-covid' response this year to the Omicron strain is bound to extend 'Made in China' shortages. The seventh reason is Russia's attack on Ukraine, two countries that account for 12.4% of calories traded, much of it to poor countries.[11] Western sanctions to punish Moscow are denying European businesses the Russian oil and gas they need to operate. Blackouts are possible, as are factory closures.[12] The sanctions are blocking the export of the fertiliser that helps farmers worldwide maximise crop output. In Ukraine, the fighting, Russian plundering and sabotage of rural production and Moscow's siege of Black Sea ports are blocking the export of grain staples.[13] Many warn of a global famine. The head of the UN's World Food Programme in May cautioned that hundreds of millions of people are "marching to starvation" in what could rank among the worst humanitarian disasters since World War II. The last reason given here for the shortages is fear of shortages. The panic-driven hoarding that emptied supermarkets of basic goods at the start of the covid-19 pandemic is reappearing in other forms. The US-based International Food Policy Research Institute said by early April at least 16 countries had banned export amounting to 17% of traded calories to stockpile local supplies. The list includes India outlawing wheat exports and Malaysia forbidding poultry trade at a time when 80% of the world lives in countries that are net importers of food.[14] The shortages behind delays, waste, forgone production and lost sales come with notable macroeconomic and political consequences. Economic growth will be lower than otherwise and inflation higher because scarcity makes prices much more sensitive to demand. Even if demand is steady, interruptions to the supply of goods result in the 'supply-side' inflation that central banks can do little to subdue. At the same time, high demand for labour leads to wages-price spirals that enshrine inflation, though at least central banks can calm an overheated labour market with rate increases. But the combination of reduced demand to subdue wages inflation, forgone production from supply shortages and hard-to-suppress supply-side inflation is stagflation. The political consequences of shortages and inflation are the protests directed at authorities that litter history, most prominently when hunger is driving the anger. Sri Lanka's deadly political turmoil and economic collapse is the latest example; all the more tragic because a government decision in 2021 to ban fertilisers and pesticides created a famine.[15] In a world of shortages, how can businesses and policymakers help? Governments are pondering sending in navies to get produce through the Black Sea. So far, too risky. More mundane decisions include that officials can reduce the amount of grain used in biofuels to help the world can feed itself.[16] Policymakers could prioritise fomenting another 'Green Revolution' by encouraging the adoption of 'agritech' to boost crop yields.[17] Business options include proper mapping of their suppliers, 'reshoring' and diversifying sources. Firms can use shorter shipping routes, undertake more frequent stock updates, pre-order and manage inventory levels more prudently. Truth is there are no quick solutions. The age of scarcity will pass but not for a while and not before it has shaken the world. To be sure, the 'everything shortage' is an exaggeration. Many would say that capitalism responded brilliantly to a surge in demand for medical and durable goods during the pandemic.[18] Policymakers are exaggerating the inflationary effects of shortages to shift blame from the excess demand they created with their fiscal and monetary stimulus during the pandemic. The worst appears over for shipping disruptions - peak dislocation seems to have been late last year. Same too for chip production, according to car makers,[19] while US retailers are complaining of too much inventory. But that's due to a drop in demand. Governments are taking action. Washington in June used emergency powers to solve a logjam of imports of modules and components for the solar-power industry.[20] But businesses immediately said this action would impede their efforts to boost domestic production.[21] Whatever the best way to ensure the US advances solar power, governments have the lesser role in solving today's shortages because their conventional economic tools are of little use. By and large, scarcity is a problem that business needs to solve. Babies depend on it. Organic failure In 2019, Sri Lankan President Gotabaya Rajapaksa unveiled "Vistas of prosperity and splendour," his vision for the island nation that had long been self-sufficient in food. Among many goals was one to "promote and popularise organic agriculture during the next 10 years".[22] In April 2021, Rajapaksa embarked on the world's greatest organic farming experiment when he suddenly banned the importation of chemical fertiliser and pesticides and ordered farmers to go organic without any help from imported organic fertiliser.[23] The results are tragic. Within six months, Sri Lankan rice production plunged 20% and rice prices soared 50%. The government was forced to import rice and ease the ban on chemicals.[24] But coupled with the pandemic's blow to tourism, the loss of tea exports to Russia and rising oil import prices, the U-turn wasn't enough. Sri Lanka has collapsed economically and politically. (Rajapaksa was ousted in May.) To some extent, Rajapaksa's shift to organic farming was a reversal of the great advances in farming in the 1960s when emerging countries adopted modern techniques.[25] Led by US scientist Norman Borlaug who won the Nobel Prize for Peace in 1970 for sparking the Green Revolution, crop yields surged, often doubled, across developing countries, especially the Indian subcontinent, thanks to the introduction of "higher-yielding short-strawed, disease-resistant wheat" that demanded the use of fertilisers and pesticides.[26] Organic farming produces up to 50% less food per hectare than conventional farming because it requires farmers to rotate soil out of production for pasture, fallow or cover crops.[27] Amid warnings of a global famine due to a fertiliser shortage and adverse weather, the world needs another technologically driven Green Revolution. Adversity spurs innovation.[28] If babies and others are in want, watch for technological advances in farming to ensure the world can feed itself again. By Michael Collins, Investment Specialist |
Funds operated by this manager: Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund [1] The New York Times. '3 types of baby formula recalled after reported bacterial infections.' 18 February 2022. nytimes.com/2022/02/18/us/baby-formula-recall.html. A shortage of baby formula can hurt older children and even adults. See Washington Post. 'Baby formula shortage life-threatening for some older kids and adults.' 3 June 2022. washingtonpost.com/health/2022/06/03/baby-formula-shortage-metabolic-disorder/ [2] Datasembly. 'Datasembly release latest numbers on baby formula.' 10 May 2022. datasembly.com/ne [3] Bloomberg News. 'Parents are trying homemade baby formula. Doctors say they shouldn't.' 13 May 2022. bloomberg.com/news/articles/2022-05-12/why-parents-making-homemade-infant-formula-should-beware-of-serious-health-risks [4] ActionNew5. '2 Mid-South children hospitalized due to nationwide formula shortage.' 17 May 2022. actionnews5.com/2022/05/17/two-mid-south-children-hospitalized-due-nationwide-formula-shortage/ [5] Thomas Y. Choi, Dale Rogers, and Bindiya Vakil. Coronavirus is a wake-up call for supply chain management.' Harvard Business Management. 27 March 2020. hbr.org/2020/03/coronavirus-is-a-wake-up-call-for-supply-chain-management. The article notes that a Japanese semiconductor manufacturer told Harvard researchers it took a team of 100 people more than a year to 'map' the company's supply networks after the earthquake and tsunami in 2011. [6] US Department of Agriculture. USDA Agri-food supply chain assessment: Program and policy options for strengthening resilience.' 24 February 2022. Page 3. Boosting local and regional markets is one answer.ams.usda.gov/sites/default/files/media/USDAAgriFoodSupplyChainReport.pdf [7] IPCC Sixth Assessment Report. 'Climate change 2022: Impacts, adaptation and vulnerability.' 'Chapter 5. 'Food, fibre and other ecosystem products.' '5.11 The supply chain from post-harvest to food.' March 2022. ipcc.ch/report/ar6/wg2/ [8] US Bureau of Labor Statistics. Chart. 'Number of unemployed persons per job opening, seasonally adjusted.' bls.gov/charts/job-openings-and-labor-turnover/unemp-per-job-opening.htm [9] WIRED. 'Why the chip shortage drags on and on … and on.' 12 November 2021. wired.com/story/why-chip-shortage-drags-on/ [10] BBC. 'Intel chief warns of two-year chip shortage.' 28 July 2021. https://www.bbc.com/news/technology-57996908 [11] International Food Policy Research Institute. 'From bad to worse. How Russia-Ukraine war-related export restrictions exacerbate global food insecurity.' Blog. 13 April 2022. ifpri.org/blog/bad-worse-how-export-restrictions-exacerbate-global-food-security [12] Russia has restricted gas exports to Bulgaria and Poland in April over their refusal to pay in roubles and on Finland due to its application to join Nato. Russia is the world's biggest exporter of fertiliser and within a month of Russia's attack on February 24, Nola urea, a key fertiliser, had surged 60% to a 34-year height of US$880 a ton. [13] The Wall Street Journal. 'Ukraine is struggling to export its grain, and here's why.' 5 June 2022. wsj.com/articles/ukraine-is-struggling-to-export-its-grain-and-heres-why-11654421400 [14] The Economist. 'Why banning food exports does not work.' 25 May 2022. economist.com/the-economist-explains/2022/05/25/why-banning-food-exports-does-not-work [15] Reuters. 'Fertiliser ban decimates Sri Lanka crops as government popularity ebbs.' 3 March 2022. reuters.com/markets/commodities/fertiliser-ban-decimates-sri-lankan-crops-government-popularity-ebbs-2022-03-03/ [16] Håvard Halland, Rüya Perincek, and Jan Rieländer, executives at the OECD 'Links between energy and food must be weakened.' 27 May 2022. Financial Times. ft.com/content/471d4513-176c-4837-a7d4-7ef2609b720a [17] 'Agritech' is the modern term for technology solutions to boost crop yields. The term covers 'agplastics' for when plastic is used in farming for drip irrigation, coverings and much more. It enfolds genetically modified crops and hydroponics and other soil-less farming techniques. Included too are autonomous sprayers, driverless tractors, drones, imaging devices to detect diseases, laser soil analysis, microbes that boost plant growth, robot fruit pickers, vertical farming and the use of artificial intelligence and data sharing to power 'agrobots'. [18] Financial Times. Martin Sandbu. 'Shortages, what shortages? Global markets are delivering.' 15 December 2021. ft.com/content/ea89a152-ca34-4c01-8986-0d019f3cae74 [19] Bloomberg News. 'Carmakers feel chip crisis easing as global growth slows.' 4 June 2022. bloomberg.com/news/articles/2022-06-04/carmakers-feel-chip-crisis-easing-as-global-growth-slows [20] The White House. 'Declaration of emergency and authorisation for temporary extensions of time and duty-free importation of solar cells and modules from Southeast Asia.' 6 June 2022. whitehouse.gov/briefing-room/statements-releases/2022/06/06/declaration-of-emergency-and-authorization-for-temporary-extensions-of-time-and-duty-free-importation-of-solar-cells-and-modules-from-southeast-asia/ [21] The Wall Street Journal. 'White House set to pause new tariffs on solar imports for two years.' 5 June 2022. wsj.com/articles/white-house-wont-put-new-tariffs-on-solar-imports-for-two-years-sources-say-11654482582 [22] Sri Lankan government. 'National policy framework. Vistas of prosperity and splendour.' 2019. Page 25. doc.gov.lk/images/pdf/NationalPolicyframeworkEN/FinalDovVer02-English.pdf [23] US Department of Agriculture. Global Agricultural Information Network. 'Report name: Sri Lanka restricts and bans the import of fertilisers and agrichemicals.' 28 May 2021. apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName [24] Foreign Policy. 'In Sri Lanka, organic farming went catastrophically wrong.' 5 March 2022. foreignpolicy.com/2022/03/05/sri-lanka-organic-farming-crisis/ [25] See 'Green revolution'. Britannica. britannica.com/event/green-revolution [26] 'Norman Ernest. Biographical.' The Nobel Peace Prize 1970. The Nobel Prize. nobelprize.org/prizes/peace/1970/borlaug/biographical/ [27] Bjorn Lomborg. 'Organic farming is turning a food crisis into a catastrophe.' The Australian. 4 June 2022. theaustralian.com.au/inquirer/organic-farming-is-turning-a-food-crisis-into-a-catastrophe/news-story/944625bd3168b212eddccadeaed82640 [28] The Wall Street Journal. 'Fertiliser price surge drives Brazil to high-tech alternatives.' 8 June 2022. wsj.com/articles/fertilizer-price-surge-drives-brazil-to-high-tech-alternatives-11654701075 Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 ('Magellan') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. 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29 Jun 2022 - Performance Report: Paragon Australian Long Short Fund
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Fund Overview | Paragon's unique investment style, comprising thematic led idea generation followed with an in depth research effort, results in a concentrated portfolio of high conviction stocks. Conviction in bottom up analysis drives the investment case and ultimate position sizing: * Both quantitative analysis - probability weighted high/low/base case valuations - and qualitative analysis - company meetings, assessing management, the business model, balance sheet strength and likely direction of returns - collectively form Paragon's overall view for each investment case. * Paragon will then allocate weighting to each investment opportunity based on a risk/reward profile, capped to defined investment parameters by market cap, which are continually monitored as part of Paragon's overall risk management framework. The objective of the Paragon Fund is to produce absolute returns in excess of 10% p.a. over a 3-5 year time horizon with a low correlation to the Australian equities market. |
Manager Comments | On a calendar year basis, the fund has only experienced a negative annual return once in the 9 years and 3 months since its inception. Over the past 12 months, the fund's largest drawdown was -27.05% vs the index's -6.35%, and since inception in March 2013 the fund's largest drawdown was -45.11% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in January 2018 and lasted 2 years and 7 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by August 2020. The Manager has delivered these returns with 12.76% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.47 since inception. The fund has provided positive monthly returns 69% of the time in rising markets and 44% of the time during periods of market decline, contributing to an up-capture ratio since inception of 107% and a down-capture ratio of 92%. |
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29 Jun 2022 - Performance Report: Bennelong Concentrated Australian Equities Fund
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Manager Comments | The Bennelong Concentrated Australian Equities Fund has a track record of 13 years and 4 months and has outperformed the ASX 200 Total Return Index since inception in February 2009, providing investors with an annualised return of 14.34% compared with the index's return of 10.09% over the same period. On a calendar year basis, the fund has experienced a negative annual return on 2 occasions in the 13 years and 4 months since its inception. Over the past 12 months, the fund's largest drawdown was -26.45% vs the index's -6.35%, and since inception in February 2009 the fund's largest drawdown was -26.45% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in December 2021 and has lasted 5 months, reaching its lowest point during May 2022. During this period, the index's maximum drawdown was -6.35%. The Manager has delivered these returns with 1.93% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.81 since inception. The fund has provided positive monthly returns 90% of the time in rising markets and 19% of the time during periods of market decline, contributing to an up-capture ratio since inception of 137% and a down-capture ratio of 96%. |
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29 Jun 2022 - Investment environment snapshot
Investment environment snapshot Laureola Advisors June 2022 The S&P declined 8.8% in April and by late May was down over 12% ytd. The Nasdaq was down 22% ytd. and Bitcoin down 38% ytd. The 10 yr Treasury finished at 2.9%; the yield has doubled in 18 mos. Concern is growing that the US Fed may be making serious policy mistakes by being weak on fighting inflation and focusing on supporting equity prices. The Fed may have to choose between two evils, both with significant negative effects. The respected economist Mr. El Erian has been vocal on this issue: "I think the Fed is going to have to decide between two policy mistakes ...". Rising rates won't help an economy already showing signs of weakness: new home sales were down 16.6% and business owners are increasingly pessimistic. The geo-political backdrop worsens as Russia and China appear to be allying more closely both economically and militarily. China has chartered 10 extra tankers in May alone to transport Russian oil and the two countries did a joint exercise flying strategic bombers over the Sea of Japan during President Biden's recent visit to Tokyo. Wheat shortages in Egypt (80% of her wheat comes from Ukraine and Russia) recently caused a riot in the streets as the subsidized bakery had no bread. The need for diversification in portfolios is greater now than ever and Life Settlements can provide the required stable, non-correlated returns even in this uncertain world. Funds operated by this manager: |