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31 Jan 2025 - Performance Report: Insync Global Quality Equity Fund
[Current Manager Report if available]
31 Jan 2025 - Performance Report: TAMIM Fund: Global High Conviction Unit Class
[Current Manager Report if available]
31 Jan 2025 - Performance Report: Equitable Investors Dragonfly Fund
[Current Manager Report if available]
31 Jan 2025 - Future Quality Insights: Pandemic Memories
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Future Quality Insights: Pandemic Memories Yarra Capital Management December 2024 From pandemic pups to investment peaks Like many other households during the global COVID pandemic, we welcomed a new resident into our home: a small furry pooch named Benji. As our eldest son was leaving the family nest, getting a dog was a shameless act of replacement. It is not that our son Jamie used to follow us around the house and beg for food (at least not all the time) but the sense of quiet at home when he moved away to university became even more acute during the pandemic lockdown. Like many, we found solace in the comfort, loyalty and affection that dog owners will understand only too well. For those of you wondering what relevance this has in an investment article, it might be worth noting that Benji is now approaching the ripe old age of four. Although still a puppy at heart, he is moving through his adolescent phase and entering the human equivalent of his 20s. He is in his prime, but not for much longer. In the next couple of years, the millions of pets around the world adopted during lockdown will start to reach middle age. As humans of a certain age know only too well, this is when medical bills begin to rise. In short, we believe that there is a coming boom in pet healthcare never seen before (if only my son had studied something practical like veterinary medicine). In our view, this boom will not only benefit veterinarians but also present opportunities for companies in the animal pharmaceutical industry -- a sector where we have been doing some additional research recently. As an investment team, this link between the pandemic and pet healthcare got us thinking about other industries that were impacted by COVID-related demand cycles. We were prompted to consider how this might be currently unfolding and whether it is creating opportunities for long-term investment. The first thing that struck us during our reflections was the apparent existence of a COVID-related cycle in human memory, which seems to hamper our attempts to remember certain parts of the past. This could be the continuation of an existing trend, although we could not quite remember. Have we been systematically outsourcing our memory to Google for the last 20 years? In my case, almost definitely. Are we about to outsource our imagination to AI? Very possibly. Psychologists attest that we remember events to which we attach emotions, like the pain of a stock investment that went wrong. So why is it so difficult to remember the details of the pandemic? Almost two years of our lives were turned upside down, yet we struggle to recall precisely what happened and when. According to one theory, we were overloaded with emotion during the pandemic as we grappled with stressful daily updates about death rates, lockdown rules and restrictions on liberty. Faced with such a daunting picture, the theory goes that it is much easier for us to simply forget. With the aid of Google and a bit of Chat GPT, it is possible to piece this tricky bit of history back together and remember the industries that were impacted the most. So here it is--the painful (though not exhaustive) top 10 or so activities we did or saw during lockdown. For those with a nervous disposition who still wish to forget, feel free to look away now...cue the music please Benji. Let us start with the things we saw more of...
Then the things we did less of...
While the examples above may seem somewhat light-hearted and anecdotal, the consequences of these demand cycles are still being felt in many cases. Take, for example, Mark Schneider, the outgoing CEO of Nestle, or Laxman Narasimhan, the recently ousted CEO of Starbucks. Both were leaders of multinational consumer brands who struggled to adapt to the post-COVID world of volatile inflation and shifting consumer preferences. In fact, the list of consumer-facing businesses struggling with these issues is extensive. Companies like Diageo, Remy Cointreau, LVMH, L'Oreal, Estee Lauder, Burberry, Kerry Group and Kering, to name a few, have all suffered sharp share price reversals after the pandemic. The virtuous cycle turned vicious, and while these companies will likely recover, the dismissal of otherwise talented executives with successful track records shows the difficulty of distinguishing between cyclical trends and structural changes. We are likely witnessing these consumer-facing industries going through a classic long-tailed inventory cycle. Investors, including ourselves in the case of Diageo, became overly optimistic about the trajectory of demand for luxury goods, cosmetics and spirits in the reopening phase of the pandemic. Investors appear to have mistaken a stimulus-fuelled acceleration in demand, further boosted by inventory restocking, as a structural shift rather than a cyclical one. Currently, it is possible that the reverse is starting to occur. As tighter monetary policy hurt consumption, an inventory destocking phase began. Weaker demand, inventory destocking and falling valuations could be creating a compelling long-term investment opportunity. However, we may need patience -- a virtue that is seemingly in short supply in this post-pandemic world. These consumer-facing companies will likely bounce back, just as those left in the wake of the 1990s tech bubble emerged as some of the leading stocks of the early 2000s. One industry that may be springing back to life is video gaming. After a pandemic-induced boom in gaming, growth rates naturally moderated in the aftermath. Sony, for example, saw their operating margin within its gaming division drop from over 10% to just 5%, causing its share price to stagnate while the rest of the Japanese equity market surged. However, demand is now recovering, as evidenced by Sony's most recent results, with the company posting a gaming operating margin approaching 14%. The gaming recovery has been further confirmed by positive earnings reports from Tencent's gaming division and sports-related software producer Electronic Arts. We should not forget that all cycles turn eventually. The medical device sector is another industry that experienced a COVID boom followed by a dramatic post-pandemic slowdown in the last few years. While we were busy consuming alcohol, buying luxury goods and playing video games during the pandemic, the pharmaceutical and biotech industries were spending record amounts on developing new drugs. This created an excess inventory in equipment used to discover and produce these new therapies. Companies like Danaher and Bio-techne have struggled to contend with high inventories in their key end markets and a moderation in demand. Fortunately, this trend appears to be turning a corner, with an observable acceleration in orders and shipments across the industry. This shift has been welcome news for the companies in which we are invested. Patience indeed seems to be a virtue. Finally, it would be an oversight not to mention politics, which was impacted the most by COVID. It is difficult to explain how a candidate who, while US President, suggested that COVID could be defeated by ingesting bleach, could subsequently be re-elected even after alleging that citizens were eating their neighbours' pets (I'll let you know when it's safe to come out from under the sofa Benji). Collective amnesia brought upon by COVID could have played a part; however, the shift in the US political landscape may have more to do with the impact inflation had on the real incomes of the lower-income households. Perhaps for the first time in recent history, the Republicans attracted majority support from less affluent voters, a sobering thought for Democrats reflecting on their last four years. The outlook for the post-election world remains uncertain. The impact of a truly "America first" policy could be far reaching. However, it appears that the tail risks of such a policy are inflationary rather than deflationary. As such, we feel more strongly than ever that investors should strive for a diversified global portfolio of quality companies that can thrive in an environment where the cost of capital may be higher than previously expected. Our collective experience of the pandemic reminds us that such an approach is a fairly good idea. |
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Funds operated by this manager: Yarra Australian Equities Fund, Yarra Emerging Leaders Fund, Yarra Enhanced Income Fund, Yarra Income Plus Fund |
30 Jan 2025 - Performance Report: Insync Global Capital Aware Fund
[Current Manager Report if available]
30 Jan 2025 - From Resilience to Risk: Australian Market Outlook for 2025
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From Resilience to Risk: Australian Market Outlook for 2025 Sage Capital January 2025 |
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As we reflect on the key developments of 2024 and look ahead to 2025, this article provides an in-depth analysis of the trends shaping both global and Australian equity markets. Key Takeaways
2024 in Review: Global Strength, Local Surprises, and Shifting Market DynamicsLooking back, 2024 was a strong year for the Australian equity market as it trended higher with a strong performance by US equities being a key driver. The subsidence of inflationary pressures allowed the US Federal Reserve (US Fed) to shift to an easing monetary policy bias, cutting the official cash rate three times by a total of 100 basis points. This helped boost sentiment and asset prices in general as the market took comfort that downside economic risk was controlled. The US presidential election and the eventual Trump victory saw a strong finish to the year for markets. Equities, the US dollar, gold and cryptocurrencies were all aggressively bid as investor sentiment shifted into euphoric territory. The Australian market was a little more subdued as resources were generally under pressure across the year with sluggish Chinese growth and a lack of material stimulus. The most notable feature of the local market was the strong performance by the banks with CBA rerating to around a 25x Price Earnings ratio and forming over 10% of the index, leaving even seasoned investors, including us, puzzled. This breakdown in market efficiency appears linked to the increasing dominance of passive indexation and the growth of superannuation funds, that have divergent goals to maximising returns. Navigating 2025: Balancing Optimism with Emerging ChallengesAs we look forward to 2025, Sage Capital sees a generally positive outlook for Australian equities, though several risks are emerging. The primary risk is the potential impact of new US trade tariffs, which may drive domestic investment higher in the medium term but could disrupt short term growth and intensify inflationary pressures. Linked to this is the significant disconnect building between the bond market and the equity market. Bond yields have been pushing higher throughout the year as stronger US growth and more persistent core inflation have seen interest rate cut expectations pared back. There is also a supply-demand dynamic at play, with large budget deficits requiring funding, while the US Fed's quantitative tightening―by not repurchasing its considerable holdings of government bonds as they mature, adds further pressure. This process of quantitative tightening and interest rate cuts has seen the yield curve steepen but may act to constrain growth given that US mortgage interest rates are priced off the long end. Further increases in US bond yields may challenge markets, particularly across growth stocks which were largely immune from valuation impacts last year. We've seen similar dynamics at work in Australia where higher interest rates have largely been ignored by long duration growth stocks, across both healthcare and technology. Whilst this is the area of the market that is delivering the most consistent earnings growth with a combination of pricing power, low fixed costs and high margins, it's also the area of the market which has become the most crowded and valuations have been pushed beyond historical extremes in many cases. It's hard to ignore growth stocks when looking for high quality earnings compounders, but the risk of a sharp valuation correction is rising if these bond market dynamics continue. Our approach is to remain broadly neutral while identifying areas of relative valuation and earnings outperformance. Commodity prices have been generally soft, hampered recently by the strength in the US dollar, but broadly reflecting softer growth in China. It is difficult to be positive going forward on bulk commodities as China's population declines and an apparent lack of policy desire to stimulate the property and infrastructure sectors given the overbuilding that has already occurred. Our preference remains for base metals such as aluminium and copper where electrification demand is a key support for prices. Lithium remains oversupplied in the short term and western tariffs against Chinese EVs are unlikely to boost demand. However, the downside is also limited by cost curve support, so Sage Capital are relatively neutral and focused on stock selection. Energy has been unpopular as macro growth concerns and softening demand growth in China amongst a strong EV transition, although supply discipline by Organisation of the Petroleum Exporting Countries (OPEC) has helped provide price support. Energy stocks look cheap, and the space is heavily shorted so a contrarian move wouldn't surprise, particularly if the incoming US government drives stricter adherence to Russian and Iranian sanctions on oil exports. The Australian economy has remained reasonably strong, though higher interest rates have put pressure on heavily leveraged households. This has created a two-speed economy, split along demographic and generational lines, with older generations that have accumulated wealth benefiting from higher income flows, while younger generations, burdened by mortgage debt and higher rents, have faced greater financial strain. We expect this dynamic to persist in the short term, with a tight labour market and persistent services inflation likely keeping the RBA on hold until mid-2025. Even then, policy isn't that tight, and absent a growth shock, interest rates are unlikely to be significantly reduced. Sector Insights: Opportunities in Travel, Financials, and Diversified StrategiesSage Capital maintains a preference for travel stocks where older cohorts with wealth have an increasing preference to travel. While we don't foresee a material downturn in spending, weaker terms of trade with softer commodity prices, higher interest rates eroding savings buffers, and uncertainty surrounding the federal election are likely to keep consumer spending constrained. While performing well, some discretionary retailers, much like the banks, have re-rated to valuation levels that can't be justified by their growth outlooks. A solid, if unspectacular, growth outlook for the Australian economy and a strong labour market suggest that a bad debt cycle isn't imminent for the Australian banks. By the same token, banks have limited earnings growth potential as mortgage competition keeps net interest margins under pressure, book growth is limited given high household indebtedness, and rising costs are difficult to control amidst ongoing technology, security and regulatory demands. The valuation expansion doesn't appear justified by fundamentals, presenting more opportunities for shorting positions. Sage Capital's preference within the Yield group has for some time remained with insurers and diversified financials, and this is unchanged. These stocks all have ongoing earnings growth, even as the insurance premium cycle nears maturity. Valuations are closer to fair than cheap given the broad re-rating across the last year, but they are still clearly preferable than those in the banking sector. The portfolios are constructed using Sage Groups to minimise macro volatility with a focus on individual companies within these groups. Sage Capital maintains low net exposure to each Sage Group to limit the impact of unpredictable macro risks, and as always, the portfolios are well diversified and liquid. |
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Funds operated by this manager: CC Sage Capital Equity Plus Fund, CC Sage Capital Absolute Return Fund |
29 Jan 2025 - Performance Report: Digital Income Fund (Digital Income Class)
[Current Manager Report if available]
29 Jan 2025 - Airlie Australian Share Fund Quarterly Update
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Airlie Australian Share Fund Quarterly Update Airlie Funds Management December 2024 |
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Emma Fisher discusses key drivers and insights from the recent quarter and how the portfolio was positioned to navigate the market. Emma also highlights the best performers for the fund and outlines opportunities the team continues to monitor as we move into 2025. Funds operated by this manager: Airlie Australian Share Fund, Airlie Small Companies Fund Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 trading as Airlie Funds Management ('Airlie') 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. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Airlie will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie. |
28 Jan 2025 - Performance Report: ECCM Systematic Trend Fund
[Current Manager Report if available]
