NEWS
13 Sep 2024 - Performance Report: Bennelong Long Short Equity Fund
[Current Manager Report if available]
13 Sep 2024 - Performance Report: 4D Global Infrastructure Fund (Unhedged)
[Current Manager Report if available]
13 Sep 2024 - Government Bonds and High Yield Credit Compete for the Podium in a High Interest World
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Government Bonds and High Yield Credit Compete for the Podium in a High Interest World JCB Jamieson Coote Bonds August 2024 When you're chasing those enticing yields, high yield credit funds can seem like a golden ticket. They promise strong returns compared to other asset classes, which might make them look like the smarter choice. But before diving in, it's crucial to understand that not all fixed income assets are created equal. High returns come with their own set of risks, and knowing what those are can help you make more informed investment decisions. The emergence of private credit fundsAs banks cut back on corporate lending, private credit funds have become more popular, offering more competition and financing options. These funds aim to generate returns through various strategies, which require careful consideration. Key factors include:
Understanding these aspects helps investors make informed decisions in this growing market. Credit funds, including those focused on more speculative private credit and property construction loans, often attract investors with the promise of higher returns. These funds offer elevated interest rates because they invest in debt issued by companies with lower credit ratings. While the potential for greater income is appealing, it's essential to understand that these higher yields come with substantial risks. Liquidity: The core concernA hallmark characteristic of genuinely defensive assets is liquidity. Private credit funds often have lower liquidity due to long lock-up periods, longer lead-times for redemptions and infrequent fund trading windows. Since these funds tend to involve direct lending to organisations, the loans do not trade on exchanges, therefore the secondary market to recall or trade capital is extremely low and difficult. For example, during the early days of Covid-19 in March 2020, many fixed income funds, both traditional and alternative, raised sell spreads to effectively gate investor capital, showing that what seemed like a safe investment could be problematic in times of crisis. Default Risk (Volatility): Compromising your hard earned capitalThe primary risk associated with credit funds is default risk. This refers to the possibility that the issuer of the bond or loan may be unable to meet its interest payments and/or repay the principal amount. This can become a real possibility during times of economic stress. The value of these investments can fluctuate dramatically based on a range of factors, including market sentiment, company-specific news, or broader economic deterioration. For example, if a company issuing high yield bonds reports poor earnings or faces operational challenges, the value of its bonds may drop. Similarly, changes in interest rates or economic downturns can lead to sharp declines in the value of high yield credit investments. This volatility means that while you might experience higher returns during periods of economic growth, there's a substantial risk of seeing your investment value decline during downturns or periods of market uncertainty. As with Olympic contenders, where unexpected outcomes can shift the podium positions, in the investment arena, a single default can have significant repercussions. The risk is magnified in high yield credit funds, where issuers are often less stable and more susceptible to economic fluctuations. Just as a single misstep in a crucial race can cost an athlete the gold, a default can lead to substantial losses for investors. Transparency Risk: The price of potential high returnsValuation is a key piece of private credit, affecting returns, risk, the cost and availability of capital. Since valuations are typically periodic with long lags, they may not reflect current market conditions or asset performance. This issue can be worsened where a fund may not fully account for borrower difficulties in its valuations. Inflated valuations can reduce loan liquidity, as there's less incentive to redeem at true values. Unfortunately, this trend is becoming more common across the private credit industry. Property Construction Loans: additional risksProperty construction loans, a subset of private credit funds, come with their own set of risks that can amplify the overall risk profile of high yield credit funds. These loans are typically provided to developers for building residential or commercial properties and are often characterised by high interest rates due to the inherent risks involved. Construction projects can face numerous challenges in tighter times, such as delays, cost overruns, and regulatory hurdles. If a project encounters significant problems or fails to complete on time, the borrower may struggle to repay the loan, increasing the risk of default. The financial health and track record of the developer is critical in assessing the risk of default. Such loans can also be less liquid compared to other investments. If you need to exit your investment before the construction project is completed or the loan matures, you might face difficulties in finding a buyer or could have to sell at a discount. Balancing Risks and RewardsInvesting in high yield credit funds and property construction loans can be a way to achieve higher returns, but it's important to weigh these rewards against the associated risks. Credit investments can offer attractive income opportunities, but they come with the potential for significant volatility and default risk. Property construction loans add another layer of risk. To navigate these risks, a diversified investment approach can help. Balancing high yield credit funds with more stable investments, such as government bonds or investment grade securities, can provide a buffer against the volatility and risk of high yield investments. Additionally, thorough due diligence on the underlying assets and careful consideration of the economic environment can aid in making informed investment decisions. Ultimately, the quality of private credit depends on the investment managers behind it. Their expertise in assessing and monitoring loans, managing risk, and protecting capital is key. Additionally, their experience, industry relationships and track record across various market cycles are essential factors. Government Bonds: A safe haven in a volatile environmentGovernment bonds typically perform well during periods of economic uncertainty and downturns. With sustained inflation and higher interest rates, the real return on existing bonds can become less attractive compared to new issues, which might offer higher yields. However, government bonds retain their appeal due to their stability and lower risk profile. And, within a government bond fund, portfolios are diversified with individual bonds maturing being steadily replaced by newer issues, which helps these funds keep pace with return needs. Government bonds inherent safety can attract investors looking for a refuge amid economic volatility. When interest rates eventually start to decline, the value of existing government bonds with higher coupon rates is likely to rise. Lower rates mean that newly issued bonds will offer lower yields, making existing bonds with higher rates more valuable. Additionally, as the economy begins to recover and inflation pressures ease, government bonds will likely benefit from renewed investor confidence and demand. Navigating Higher Risk in a Challenging EnvironmentCredit funds react differently to the economic landscape. In the current environment of high inflation and interest rates, the risk of default among companies with weaker credit ratings increases. As interest rates start to decline, the situation for high yield credit funds may improve, but not without complexities. Lower rates can reduce the cost of borrowing for companies, potentially easing some of the financial pressure and reducing default risk. However, the recovery in high yield credit markets might be uneven, depending on how quickly economic conditions improve and the specific financial health of the issuing companies. In light of these dynamics, it's crucial for investors to consider how shifts in economic conditions could impact their portfolios. Government bonds may offer increased value as interest rates decline, while high yield credit funds might see some relief if economic conditions improve. For a balanced investment approach, incorporating government bonds can provide stability and potential capital appreciation in a declining interest rate environment. Meanwhile, carefully selected high yield credit investments might still offer opportunities for higher returns, but should be approached with caution and a clear understanding of the associated risks. Which Investment Takes Gold?So, where does that leave investors? High yield credit funds and government bonds each play distinct roles in an investment portfolio, much like different events on the track. High yield funds are akin to the high-risk, high-reward sports, where taking on greater risk can lead to the potential for impressive returns, much like a daring pole vault or a thrilling sprint. These funds might suit investors prepared to handle the volatility and aim for those high yield medals. On the other hand, government bonds are like the marathon--steadily paced and reliable. For investors seeking stability and a steady income, government bonds are your marathon runners, providing a dependable performance over time. They are well-suited for investors who value consistency and want to avoid the unpredictability of higher risk investments. Ultimately, the choice should align with an investors financial goals, risk tolerance, and how they view the economic landscape unfolding. Funds operated by this manager: CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged) |
12 Sep 2024 - Performance Report: Seed Funds Management Hybrid Income Fund
[Current Manager Report if available]
12 Sep 2024 - Performance Report: DS Capital Growth Fund
[Current Manager Report if available]
12 Sep 2024 - Performance Report: Bennelong Australian Equities Fund
[Current Manager Report if available]
12 Sep 2024 - Can the Commonwealth Bank of Australia's share price rally continue into FY25?
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Fast food profits Can the Commonwealth Bank of Australia's share price rally continue into FY25? Montgomery Investment Management August 2024 Our domestic large-cap funds have maintained an underweight position in the banks, and even though the Commonwealth Bank of Australia (ASX:CBA) was, for a time, our largest position, being underweight in the sector has cost relative performance thanks to the Commonwealth Bank of Australia's share price rallying as much as 23 per cent year-to-date and 35 per cent last financial year. Our reasoning is relatively straightforward; first, with each bank's position in Australia's banking oligopoly relatively stable - thanks in part to customer inertia and living on an island, and with each one constantly eyeing the others, we find their market shares and relative operating performances rarely vary much in absolute or relative terms. Therefore, trying to pick the short-term outperformance consistently successfully of one bank over the others has often proven to be a fool's errand. Secondly, and importantly, we have not identified a "change" trigger among the banks that justifies significant share price outperformance. Therefore, we do not believe the banks' outperformance can be repeated in 2025. For the major banks, competition remains intense, especially for home loans, and underlying demand for home and business loans is subdued, reflecting moribund economic activity. The Commonwealth Bank of Australia's FY24 cash earnings were higher than consensus analyst expectations, and pre-provisioning operating profit (PPOP) was in line with consensus estimates, driven by higher than anticipated net interest margin (NIM - more on that in a moment). Overall, the result was broadly in line with modest loan growth, expense growth of three per cent, and below-average bad debt expenses. The final ordinary dividend per share was 250 cents, 10 cents higher than analyst expectations and it takes the full-year dividend to $4.65, which is 3.3 per cent up on the previous year. Notably, the dividend reinvestment plan (DRP) will be done with no discount and will be offset by an on-market buyback. The Commonwealth Bank of Australia's FY24 Common Equity Tier 1 capital (CET1) ratio, was 12.3 per cent and 19.1 per cent on an internationally comparable basis. CET1 is a capital measure that was introduced in 2014 as a protective precaution to head off another financial crisis. In the event of a crisis, equity is taken first from Tier 1, which includes liquid bank holdings such as cash and stock. The Commonwealth Bank of Australia's resilience in maintaining its net interest margin (NIM) was a notable highlight in today's results. However, there were some early warning signs, including a potential decline in asset quality, driven by expected pressures on real household disposable income, and a resurgence in mortgage competition. For what it's worth, your author believes we will sidestep a recession this year and the reported slump in consumption will stabilise. From a valuation perspective, it's interesting to observe that while the Commonwealth Bank of Australia estimates its market-implied cost of equity to be around 8 per cent (I note many share market investors are using lower rates to justify stock market valuations for much riskier companies). However, the Commonwealth Bank of Australia maintains an internal cost of capital hurdle at 10 per cent. Investors are using lower rates to justify investing in the Commonwealth Bank of Australia at current prices. By lowering the discount rate, we can dream up a valuation for the Commonwealth Bank of Australia that is close to the price, but the company's prospects aren't as bright as many other companies also listed on the ASX. We view the Commonwealth Bank of Australia's valuation as reasonable but not cheap. Additionally, the price-to-earnings (P/E) ratio is much higher than has been historically evident, even taking into account its status as the premier bank with the best economic business performance. As an aside we think analysts fretting over substantially rising bad debts (credit losses) are misguided - there's plenty of room to cut rates quickly if animal spirits need to be stirred. Author: Roger Montgomery Funds operated by this manager: Montgomery (Private) Fund, Montgomery Small Companies Fund, The Montgomery Fund |
11 Sep 2024 - The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market
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The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market Merlon Capital Partners August 2024 Australia's growing retirement-age population has seen an increase in demand for and the availability of equity income funds over the last few decades. Australia's unique dividend imputation system means investors can successfully derive meaningful income as well as capital growth from holding Australian equities. Equity income strategies regularly make up a large component of the equity allocation for income-focused clients who seek a more defensive asset mix. Equity income funds have evolved significantly over time, beginning in the 1990s, with MLC and Colonial First State (now First Sentier Investors) launching equity income products. These initial products were not specifically focused on paying a regular, smoothed, tax-effective income but rather designed to grow capital before retirement to provide income once in retirement. The mid-2000s saw the equity income fund reimagined, designed specifically to meet retiree's key objectives - income generation, volatility management and capital growth over time. A number of managers developed products to meet these objectives at this time. The wake of the GFC saw growing recognition of the importance of total return generation from income, limiting the need to sell down holdings during market downturns. As a result, the equity income space continued to grow and through the 2010s, various managers launched new income funds, often with full market exposure. Additionally, with the rising popularity in passive investing through the 2010s, income-focused ETFs also emerged from leading ETF providers with the goal of generating income that exceeds the dividend yield offered by the broader market. With an aging population, the addressable market for equity income funds is only growing. Whilst not all equity income funds remain in existence today, there are a variety to choose from with over 15 Australian fund managers offering a product in this space. The need for regular income in retirement is well known and there are various ways to meet cashflow requirements. However, many of these tend to overlook the particularities of retirement. While fixed income products can help to meet an income objective, they fail to provide capital growth to protect against the impacts of inflation. A diminishing capital value on a real basis is inconsistent with the desire of many retirees for a growing capital base for both peace of mind and to leave an inheritance. Another option is to pursue an equity strategy centred solely on capital growth and simply selling down holdings when cashflow is required, rather than investing in income-generating investments. Yet, this ignores the fact that retirees are much more impacted by periods of drawdown than other investors, especially early in their retirement, amplified by their obligation to draw out from accounts when in pension phase. The GFC market crash and COVID-19 selloff in early 2020 demonstrated the serious consequences of needing to sell at an inopportune time and its long-term impact on total return. Skewing the components of equity total return to income removes the need to sell investments to raise cash when required. Proposed alternatives to equity income also ignore the value of franked dividends, which for retirees in pension phase present significantly more value than unfranked income or capital gains. Australian equity income strategies, when structured and executed appropriately, can provide strong total returns over time through attractive dividend yields and without sacrificing capital growth. The Merlon Australian Share Income Fund was launched in 2005 and led the innovation of contemporary equity income funds. It was the first product of its kind, aiming to provide above-market income with franking, grow capital over time with lower risk than the market. The non-benchmark portfolio has a high active share, blending well with both passive and direct share portfolios which are typically overweight large cap stocks. The Fund delivers above market income, the majority from franked dividends, paid monthly and has demonstrated strong risk-adjusted returns over multiple time periods. The strategy features a risk reduction overlay to insulate the Fund during periods of drawdown whilst retaining 100% of the franked dividend income generated from the underlying portfolio. Funds operated by this manager: Merlon Australian Share Income Fund, Merlon Concentrated Australian Share Fund Disclaimer |
The Great Reversals (pdf format)
10 Sep 2024 - Emerging Middle Class Megatrend
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Emerging Middle Class Megatrend Insync Fund Managers August 2024 The era of blindly betting on Western brands to tap into China's burgeoning consumer market is over. Once considered no-brainers, global titans like L'Oreal, Nike and Starbucks are finding their footing increasingly precarious. Despite the allure of its growing middle class the dynamics at play are more nuanced than ever. New generation of Chinese consumers are flexing their economic muscle. No longer in favour of the imported brands that once dominated their preferences they have rotated towards domestic brands that speak to their cultural identity and nationalist pride. LVMH, a beacon of luxury with its Sephora chain, has had to slim down operations in China--a stark indicator of this shifting landscape. Domestic players, such as Anta Sports, are not only catching up but surpassing Western rivals like Adidas in market share. Meanwhile, coffee giant Starbucks, a symbol of Western lifestyle, is ceding ground to local competitors like Luckin Coffee, which captivates the market with aggressive pricing and expansive growth recently surpassing 20,000 stores. The same story echoes across most industries: global brands are no longer the default choice for Chinese consumers. Companies must now navigate a complex web of local preferences, cultural trends, and rising nationalism inside China. Simply assuming that Chinese spending power will translate to Western profits is dangerous. When investing in such global brands, understanding how these nuanced drivers impact stock values and acknowledging that what worked yesterday may not hold sway tomorrow, is now crucial. Founded only in 2017, Luckin Coffee quickly challenged Starbucks in China with lower prices, discounts, and drinks tailored to Chinese tastes, like the coconut latte and collaborations with local brands. By aligning with the "Guochao" trend, Luckin appeals to younger, cost-conscious consumers and benefits from the preference for local brands. With 20,000 stores versus Starbucks' 7,000+, Luckin dominates China's coffee market. Meanwhile, Starbucks reported an 8% revenue decline in its most recent results. Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund Disclaimer |
9 Sep 2024 - New Funds on Fundmonitors.com
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New Funds on FundMonitors.com |
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Below are some of the funds we've recently added to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research, platform availability, and news & insights. |
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| Resolution Capital Global Property Securities Fund - Series II | ||||||||||||||||||||||
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| Resolution Capital Core Plus Property Securities Fund - Series II | ||||||||||||||||||||||
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| Resolution Capital Global Listed Infrastructure Fund | ||||||||||||||||||||||
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| Blackwattle Small Cap Long-Short Quality Fund | ||||||||||||||||||||||
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| Langdon Global Smaller Companies Fund | ||||||||||||||||||||||
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| Aikya Emerging Markets Opportunities Fund | ||||||||||||||||||||||
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