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14 Mar 2022 - Performance Report: Bennelong Emerging Companies Fund
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Manager Comments | The Bennelong Emerging Companies Fund has a track record of 4 years and 4 months and therefore comparison over all market conditions and against its peers is limited. However, the fund has outperformed the ASX 200 Total Return Index since inception in November 2017, providing investors with an annualised return of 24.45% compared with the index's return of 8.27% over the same period. On a calendar year basis, the fund has experienced a negative annual return on 2 occasions in the 4 years and 4 months since its inception. Over the past 12 months, the fund's largest drawdown was -11.38% vs the index's -6.35%, and since inception in November 2017 the fund's largest drawdown was -41.74% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in December 2019 and lasted 10 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by October 2020. The Manager has delivered these returns with 14.98% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 four times over the past four years and which currently sits at 0.86 since inception. The fund has provided positive monthly returns 81% of the time in rising markets and 38% of the time during periods of market decline, contributing to an up-capture ratio since inception of 286% and a down-capture ratio of 117%. |
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14 Mar 2022 - Inflation, interest rates and equities: the big question
Inflation, interest rates and equities: the big question Montgomery Investment Management February 2022 Roger Montgomery (00:07): It is February 2022. And over the next few minutes, I'm going to address the question that is probably on the minds of most investors at the moment, and that is the interaction between inflation, short term interest rates, and equities. And what we'd like to do is present an argument that suggests that consensus may have their expectations with respect to inflation and interest rates wrong. If that's the case, then there is a very good argument for buying some of the beaten up stocks that have seen their PEs contract substantially over the last month or month and a half. With that in mind, it's very important to appreciate that we are going to be mentioning some individual company names. Roger Montgomery (00:56): This isn't a recommendation to buy those companies. In fact, we recommend only that you take personal professional advice. The last seven months or so has seen a substantial step change in interest rate expectations as a consequence of the appearance of inflation in the United States and around the world. You can see on this particular chart going back all the way to July last year 2021, that green dash line is a representation of where interest rates were expected to be back then. And you can see that since then moving to the blue line, not only have our interest rates expected to be higher, but they're expected to move sooner and more steeply. Roger Montgomery (01:44): And that really has been a very dramatic change in expectations in the market. It stems from the very hawkish fed rhetoric that's coming out of both the FOMC, the Federal Open Market Committee meeting and Jerome Powell himself. And the question is, is this troubling and should investors be concerned at the moment? The expectation is that there are probably going to be more than four interest rate hikes this year. Many investors see 2022 as a transition year. I want you to remember that expectation of four rate hikes, or even five rate hikes this year, which is currently appears to be priced in to markets, because we're going to assess the legitimacy of that or the opportunity that it presents in just a moment. Roger Montgomery (02:36): Now, it's really important to understand that since the late 1970s, there's been a huge number of studies that have shown that in periods of inflation and also during periods of rising interest rates, PEs contract or the multiple of earnings that investors are willing to pay for a company contracts. And that is the case without exception as you can see in the lower chart here, those gray shaded areas represent periods since 1980, where the 2-year yield in the United States or 2-year US Treasury yields have increased. And that coincides with periods in the top chart where PEs have contracted, and that happens without exception. So, rising interest rates means PEs contract and inflation also results in PEs contracting. Roger Montgomery (03:29): In fact, the greater the inflation, the greater the contraction in PEs. You can see on this particular chart also since 1982 to the present, not only is there a negative correlation between interest rates and PEs or equity multiples, but that correlation is somewhat exponential. Now, this is really important to understand, because what it means is that the lower interest rates are the greater the move on in PE, or the greater the contraction in PE for a given increase in interest rates. And that's why investors need to be particularly careful about what we've dubbed the profitless prosperity stocks. They're the stocks with profits pushed way out onto the horizon with no clear line of sight becoming profitable. Roger Montgomery (04:20): They're the ones that tend to be most sensitive to interest rate increases or prospective interest rate increases. But of course, because they've contracted so much in terms of their PE, that could also be an opportunity which we'll address in just a moment. In Australia, we've seen that PE contraction occur substantially. Just in the month of January, in fact, from January the fourth, you can see there are companies like Pro Medicus and Transurban and Reese, ARB, IDP Education, Corporate Travel, REA Group, for example, all very high quality companies. And they've seen their PEs contract from between 14 per cent and by almost a third 33 per cent, in fact, contraction in price to earnings multiples. Roger Montgomery (05:09): So, people are willing to pay substantially less for these businesses, in many cases, very high quality businesses than they were just a month or month and a half ago, but the outlook for companies is very different to what their share prices have been doing. We know that share prices are far more volatile than business operations and the changes in business prospects. And you can see this survey from GLG conducted in early 2022, survey of 471 global CEOs, and 68 per cent of those CEOs believe and are very confident or confident that their revenues will grow over the next 12 months. So, what we've seen is this potential setup for great opportunity for investing, because we've seen PEs contract amid short term fees about interest rates and inflation. Roger Montgomery (06:03): But meanwhile, the underlying companies are reporting that they're confident or very confident in a large case of those surveyed, confident or very confident that their revenue are going to grow. So, businesses are continuing to grow. They're continuing to profit, they're continuing to demonstrate bright prospects, and yet their share prices have contracted substantially. So the question remains is, is this an opportunity? Well, before we answer that question, just have a look at the contraction, or think about the contraction that we've seen in the Fed's assets or in their balance sheet. We know that we've seen quantitative easing and that's tipping over to quantitative tapering now. Roger Montgomery (06:54): So in other words, the US Federal Reserve is buying fewer government bonds each month than what they were buying previously. And what you can see in this chart is that not only as we mentioned earlier, is there a relationship between rising interest rates and contracting PEs, but there is also a relationship between equity market returns and a contracting US Federal Reserve balance sheet. That relationship demonstrates that as the Fed contracts its balance sheet, as it goes from quantitative easing buying bonds in substantial amounts, to reducing the number of bonds that it buys, or the amount of bonds that it buys, and then to contracting its balance sheet, where it actually shrinks the balance sheet, rather than grows it at a slower rate. Roger Montgomery (07:42): You can see that corresponds to returns on the stock market. The greater the balance sheet expansion, the greater the returns in the stock market. The greater the contraction of the balance sheet, the greater the negative return in the stock market. And that corresponds with a very simple idea that the higher the price you pay, the lower your return if you're paying very high prices for stocks. Then in the future at some point, you're going to end up with a lower return, particularly if you bought or paid high prices for stocks, when the US Federal Reserve's balance sheet was expanding. Now all of this, the prospect of rising interest rates in 2022, as well as a balance sheet contraction looks very similar to 2018. Roger Montgomery (08:26): In 2018, the US Federal Reserve hiked rates four times, and they contracted the balance sheet by about 10 per cent. So, Jerome Powell's hawkish statements recently offers a very similar prospect for 2022. Now, what we have to remember is back in 2015, we had an oil meltdown and a nominal recession in the United States. In 2016 and 2017, the economy then began recovering. The US was growing at about 3.8 per cent. We had Trump's tax cuts, and the economy was thought strong enough to support four rate hikes. For 2018, the conditions however weren't strong enough to support the Fed's four interest rate increases. The Fed arguably went too hard and that produced a stock market correction late in 2018 and importantly, that saw the fed stop raising interest rates. Roger Montgomery (09:24): Now for 2018, the US S&P 500 returned minus 7 per cent, after that stock market correction. And the Fed backed off. What's interesting is though that action of backing off raising interest rates actually saw the S&P 500 generate a 30 per cent return the following year in 2019. So, what is the possibility that the really hawkish statements we're seeing out of the US Federal Reserve now actually coincides with peak inflation fear, or even peak inflation? Is it possible that inflation has already turned the corner, and that we see lower rates of inflation in the future, which then sees the Fed pivot its current policy or current rhetoric to a more dovish and less hawkish rhetoric? Well, here's what the bond market thinks. Roger Montgomery (10:18): If you look at the difference between treasury constant maturity, securities, and treasury inflation index securities, which gives you an inflation break even curve, you can see that yes, expectations for inflation have risen slightly over the next 10 years, but it still remains steeply negative. That curve is steeply negative. Meaning, that inflation is seen by the bond market, at least as not persisting and in fact, temporary. I think about that in the context of what the bond market has actually had to absorb. They've seen 7 per cent inflation, which is massive in the United States. They've digested the possibility of four or five rate hikes from the US Federal Reserve. Roger Montgomery (11:00): They've heard tougher talk from the Fed, and there's also political pressure to deal with inflation. And despite all of that, the bond market remains firmly convinced based on this curve that inflation is a temporary phenomena. And in fact, it's not going to persist at all. In the US of course, inflation is on the front page and inflation has been very high there. And the reason why inflation is fastest in the US is because of course, the US offered the most stimulus. US employment cost index at the moment is rising to 4 per cent. Owner's equivalent rent has jumped to 4 per cent. Oil's just broken above $90 a barrel. So, there are real fears of a wage inflation spiral. Roger Montgomery (11:46): Look, there's no question that inflation in fact is running high at the moment. You can see it on this chart for the US, and it's running high in the US and Europe, but I wonder whether or not it could actually flame out. And in fact, there are some signs at the moment that the supply disruptions that have been partly responsible, or largely responsible for the jumping inflation are starting to ease.If you look at this chart here, you can see that supply deliveries and backlog of orders are actually starting to decline already. Sure, there's still supply chain problems. They're not going to disappear overnight. But at the margin, we're seeing the overall strain in the supply chain start to ease as this chart demonstrates. Roger Montgomery (12:28): And that coincides with this chart of the ISM manufacturing prices paid index, which is already tipping over. We know that prices for container freight, dynamic random access memory, German natural gas, Chinese thermal coal prices, for all of those things are already starting to decline. So, if inflation is primarily a supply side disruption and government stimulated consumer demand, or the result of those things, then it's quite possible these things aren't going to continue. And of course, if we open international borders, we'll see spending diverted to services again or travel, and that means lower demand for goods. And that we'll see some of the price pressure on those goods start to ease. Roger Montgomery (13:10): So, it's possible that inflation has actually peaked at the same time that the US Federal Reserve rhetoric is ramping up and causing all those fears in the stock market. And why is this an opportunity? This is an opportunity, simply because if you look at what the indices have done the S&P 500, our small caps index, if you look at the NASDAQ 100 in the United States or the NASDAQ Composite, you can see they've all fallen, but underneath those falls are much more substantial falls for individual issues. You can see on this table that something like 42 per cent of S&P 500 companies have fallen by more than 10 per cent, even though the S&P 500 has only fallen 3 per cent. You can see in the NASDAQ, for example, 79 per cent of companies have fallen by more than 10 per cent, even though the index has only fallen 7 per cent.Roger Montgomery (14:00): The same story is true here in Australia, and that presents a host of opportunities. If you can find businesses that are still increasing their net worth, or increasing their value by generating high rates of return on equity, growing their equity by retaining profits, that process takes years to build value, yet the stock market abandons its long term plans, investors abandon their long term assumptions for companies and worry about the short term when interest rates are expected to go up, and inflation has been running in a million miles an hour, but there is an argument as I've just demonstrated that inflation is already peaking, that we'll see consecutive lower rates of inflation in the future. Roger Montgomery (14:39): And the Fed will ease its rhetoric around inflation and interest rate rises. If that happens, then the stock market could very well bounce quite violently. In fact, as violently as it's recently fallen, and that sets up investors for a terrific opportunity for 2022. Thanks for your time, look forward to talking to you again soon. Funds operated by this manager: Montgomery (Private) Fund, Montgomery Small Companies Fund, The Montgomery Fund |
11 Mar 2022 - Hedge Clippings |11 March 2022
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Hedge Clippings | Friday, 11 March 2022 As Russia's invasion (sorry, "reunification") of Ukraine drags into its third week, it is difficult to imagine Putin pulling his forces back - or out. Any such move in the face of defeat or sanctions would signify such a massive loss of face on his part that it seems unthinkable. As a result, there are not many alternative outcomes, assuming the US and Europe stick to their guns (apologies for the mixed metaphors) and refuse to either implement a no fly zone, or decline to let the Polish lend Ukraine their (Russian built) MIG fighters. In spite of the lopsided numbers, the Ukrainian armed forces, assuming they're not wiped out (or surrender, which seems as unlikely as Putin doing the same) could dig in for a long war of attrition. History shows that these types of conflict are rarely won by the initial aggressor, as Russia knows all too well, having lost 15,000 dead and 35,000 wounded (not to mention an estimated 2 million Afghans) before retreating from their 10 year invasion of Afghanistan. By all accounts, Putin's plans assumed another decisive victory, or a quick Ukrainian capitulation, and although it's still only early days, neither of which seem likely. So a long war of attrition on Europe's doorstep will be accompanied by equally long standing sanctions and the equally damaging economic fallout that will follow. As suggested previously, while Putin's unlikely to back down, and sanctions will be effective over time, but hurt both sides, the leverage that can be put on by the increasingly asset-less Oligarchs, and the mothers of Russian soldiers, are likely to be the solution. Unless of course, Putin decides to up the ante by resorting to his oft threatened nuclear solution, thereby giving the West no option but to get further involved, escalating to goodness knows where. Estimates currently suggest a 10% chance of this outcome within 12 months. To markets: Some investors will reduce their exposure, while some will watch, wait and worry, while others see opportunity in some oversold situations. Meanwhile, on the other side of the Atlantic, it seems almost certain that the sharp spike in inflation - 7.9% and the highest for 40 years - will see an increase in interest rates. Even taking food and energy out of the figures, the annual rate was still 6.4%, and the numbers to the end of February don't factor in the inflationary effects of the recent spike in oil prices. It is safe to assume that even though higher inflation and associated increases in interest rates have been flagged and factored in for some time, when the actual time comes for the announcement - from the US Federal Reserve or our own RBA - the market will react. And given that expectations are for further inflation to flow through the system, the rate increase is unlikely to be the only one, but the first in a series. Closer to home Adviser Ratings has released the results of their survey of financial adviser numbers in Australia, with just 17,266 still in the industry, bringing numbers down by 40% since the Hayne Royal Commission. There are a number of implications from this - one being that it is increasingly difficult for those people who need advice, to find or afford it. At the same time, the alternative of using technology to provide a "robo-solution" can only solve so many problems, given the investors needing the advice may not be suited to a robo solution. At the end of the day, in all walks of life, you tend to get what you pay for. News & Insights The question is, when should you invest? | Insync Fund Managers Markets Volatile; Ukraine Invaded | Laureola Advisors Aligning Interests: (no freeloading on my tab!) | Colins St Asset Management |
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February 2022 Performance News Insync Global Quality Equity Fund Bennelong Long Short Equity Fund Bennelong Emerging Companies Fund |
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11 Mar 2022 - Performance Report: ASCF High Yield Fund
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Fund Overview | Does not require full valuations on loans <65% LVR. Borrowing rates are from 12% per annum on 1st mortgage loans and 16% per annum on 2nd mortgage/caveat loans. Pays investors between 5.55% - 6.25% per annum depending on their investment term. |
Manager Comments | The ASCF High Yield Fund has a track record of 5 years and has outperformed the Bloomberg AusBond Composite 0+ Yr Index since inception in March 2017, providing investors with an annualised return of 8.73% compared with the index's return of 2.73% over the same period. On a calendar year basis, the fund hasn't experienced any negative annual returns in the 5 years since its inception. The fund hasn't had any negative monthly returns and therefore hasn't experienced a drawdown. Since the fund's inception, the index's largest drawdown was -5.39%. The Manager has delivered these returns with 3.37% less volatility than the index, contributing to a Sharpe ratio which has consistently remained above 1 over the past five years and which currently sits at 23.78 since inception. The fund has provided positive monthly returns 100% of the time in rising markets and 100% of the time during periods of market decline, contributing to an up-capture ratio since inception of 87% and a down-capture ratio of -92%. |
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11 Mar 2022 - Performance Report: Airlie Australian Share Fund
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Fund Overview | The Fund is long-only with a bottom-up focus. It has a concentrated portfolio of 15-35 stocks (target 25). The fund has a maximum cash holding of 10% with an aim to be fully invested. Airlie employs a prudent investment approach that identifies companies based on their financial strength, attractive durable business characteristics and the quality of their management teams. Airlie invests in these companies when their view of their fair value exceeds the prevailing market price. It is jointly managed by Matt Williams and Emma Fisher. Matt has over 25 years' investment experience and formerly held the role of Head of Equities and Portfolio Manager at Perpetual Investments. Emma has over 8 years' investment experience and has previously worked as an investment analyst within the Australian equities team at Fidelity International and, prior to that, at Nomura Securities. |
Manager Comments | The Airlie Australian Share Fund has a track record of 3 years and 9 months and therefore comparison over all market conditions and against its peers is limited. However, the fund has outperformed the ASX 200 Total Return Index since inception in June 2018, providing investors with an annualised return of 11.71% compared with the index's return of 8.33% over the same period. On a calendar year basis, the fund hasn't experienced any negative annual returns in the 3 years and 9 months since its inception. Over the past 12 months, the fund's largest drawdown was -6.79% vs the index's -6.35%, and since inception in June 2018 the fund's largest drawdown was -23.8% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in February 2020 and lasted 9 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by November 2020. The Manager has delivered these returns with 0.35% less volatility than the index, contributing to a Sharpe ratio which has fallen below 1 two times over the past three years and which currently sits at 0.75 since inception. The fund has provided positive monthly returns 97% 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 109% and a down-capture ratio of 92%. |
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11 Mar 2022 - Performance Report: 4D Global Infrastructure Fund
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Fund Overview | The fund is managed as a single portfolio including regulated utilities in gas, electricity and water, transport infrastructure such as airports, ports, road and rail, as well as communication assets such as the towers and satellite sectors. The portfolio is intended to have exposure to both developed and emerging market opportunities, with country risk assessed internally before any investment is considered. The maximum absolute position of an individual stock is 7% of the fund. |
Manager Comments | The 4D Global Infrastructure Fund has a track record of 6 years and has outperformed the S&P Global Infrastructure TR (AUD) Index since inception in March 2016, providing investors with an annualised return of 9.33% compared with the index's return of 8.3% over the same period. On a calendar year basis, the fund has experienced a negative annual return on 2 occasions in the 6 years since its inception. Over the past 12 months, the fund's largest drawdown was -3.9% vs the index's -1.2%, and since inception in March 2016 the fund's largest drawdown was -19.77% vs the index's maximum drawdown over the same period of -24.67%. The fund's maximum drawdown began in February 2020 and has lasted 2 years, reaching its lowest point during September 2020. The Manager has delivered these returns with 0.53% less volatility than the index, contributing to a Sharpe ratio which has fallen below 1 four times over the past five years and which currently sits at 0.73 since inception. The fund has provided positive monthly returns 95% 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 101% and a down-capture ratio of 95%. |
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11 Mar 2022 - Markets Volatile; Ukraine Invaded
Markets Volatile; Ukraine Invaded Laureola Advisors February 2022 THE INVESTMENT ENVIRONMENT - Markets Volatile; Ukraine Invaded The S&P 500 declined 5.3% in January. Gold and oil were up; crypto and bond prices down. The Russians invaded the Ukraine on 24th of February but markets already had a full slate of concerns prior to the invasion. Inflation refuses to go away: consumer prices were up 7.5% and housing prices up 18.8% in the USA with even smaller markets showing this level of increase. The Bloomberg Commodity Index is up over 12% ytd, led by crude and gasoline. Fertilizer is double the price from a year ago and the world's largest supplier of weedkiller - an important input in food production - declared a force majeure due to shortages of the key ingredient glyphosate. Many key commodities futures have slipped into backwardation indicating low stockpiles of the world's most important commodities (food, energy, metals) without the usual supply response. The Goldman Commodity analyst described the situation as "unprecedented". Our hearts go out to the brave Ukrainians in their struggle and of course their problems dwarf any investment issues. But the Russian invasion makes the global investment landscape even more uncertain: Russia is the 5th biggest trading partner with the EU, the #1 supplier of energy to the EU, and, with the Ukraine, an important exporter of corn and wheat. Uncertainties have increased; the value of a non-correlated investment strategy like Life Settlements is greater than ever. THE LIFE SETTLEMENT MARKETS - Markets Stable; Tertiary Markets Active LS Markets were stable with average gross, projected IRR's in the 12% to 14% range on completed transactions. There were interesting developments in the tertiary market where several larger portfolios were offered including one with over 100 policies. There was some indication that the sellers were motivated and that at least some of the portfolios were of good quality, which is a marked difference from most of the past two years where tertiary trades were mostly the undesired policies to be avoided at all costs. The Life Settlement news magazine "The Deal" reported encouraging developments in the fight to prevent insurance companies from competing with Life Settlements by offering special "enhanced cash surrender offers" which may violate insurance laws in at least some States, in part because the offers may favour some policy holders over others. The issue was raised and discussed at a recent meeting of the National Association of Insurance Commissioners with several States having already fined some carriers for such offers and other States starting to review their own legal and regulatory framework and how it applies to this relatively recent development. It appears to be another example of insurance companies trying to make life difficult for the Life Settlement industry with limited success, probably due to quality legal representation and lobbying of the LS industry and the fact that each policy holder has a vote. Written By Tony Bremness Funds operated by this manager: |
10 Mar 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 1 month and has outperformed the ASX 200 Total Return Index since inception in February 2009, providing investors with an annualised return of 15.6% compared with the index's return of 10.02% over the same period. The Manager has delivered these returns with 1.8% 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 0.89 since inception. The fund has provided positive monthly returns 90% of the time in rising markets and 20% of the time during periods of market decline, contributing to an up-capture ratio since inception of 143% and a down-capture ratio of 93%. |
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10 Mar 2022 - How to Handle the Current Falling Market
How to Handle the Current Falling Market Wealthlander Active Investment Specialist February 2022 Some investors have asked us how to handle a falling market as many of their investments are losing a lot of money. Here is a summary list of our suggestions about what can be done to stop the unnecessary pain, and adapt portfolios to the new environment. 1. Recognise the Game has Changed Inflation hurts the poor and the middle class who make up the majority of US voters. A significant majority of US voters don't own much in the way of anything that benefits from price increases and haven't benefitted meaningfully from historic asset price inflation. Hence a heavily politicised FED may be forced politically to prioritise fighting inflation ahead of boosting investment markets. They do this by reducing stimulus and raising interest rates. Unfortunately for investors, fighting inflation through reducing balance sheet expansion and raising interest rates only works by crushing demand first. This means economic demand and demand for equities need to get crushed as a necessary precondition to central banks effectively fighting inflation, if they attempt to do so. We might think of this as a policy mistake or a central bank choice, as other measures of fighting inflation (such as addressing supply and labour force issues) are better than anything central banks can do - but it is what it is and comes attendant potentially dramatic effects on mainstream markets. Effectively, one needs to acknowledge the investment cycle, as we highlighted in our article in early January "Four Ways to Massively Improve Performance in 2022: https://www.livewiremarkets.com/wires/four-ways-to-massively-improve-performance-in-2022 By recognising that the game has changed, investors can pivot their portfolio approach from what has worked in a bull market driven by disinflation and interest rates moving to 0, to what works better in a bear market caused by inflation, higher interest rates and reduced stimulus and demand (as massive stimulus packages are withdrawn and inflation bites into real wages growth). The first thing that astute investors can and are doing is reduce the risk of losing money by selling or reducing assets that don't work outside a bull market, and which are at risk of building larger losses. Importantly, it is not losing small amounts but losing large losses in bear markets that destroy investors' long term geometric returns. By way of illustration of this, if you lose 33% you need a massive 50% gain to get back to even; lose 50% and you need 100% gain just to stay still. Furthermore, the journey of the investor is far from pleasant when you are in large losing territory much of the time. Far better not to lose the 33% or 50% in the first place as there is no good cure, but only prevention. 2. Take Advantage of Volatility The assets which are better suited to rising inflation and interest rates include numerous alternatives. These alternatives include skill dependent rather than market dependent managers, market neutral and long short funds, volatility funds, insurance strategies, some CTAs, commodities such as oil and gold, and small subsets of the equity and property market such as shorter duration equities including resources, farmland and water. You probably don't own much of these currently and hence aren't protecting capital from losses as well as you could be in early 2022. The asset classes don't have the marketing and media budgets of the mainstream approaches so you probably don't know as much about them. Importantly, these assets are less likely to lose large amounts over an inflationary period compared with the financial assets mentioned previously. Not losing much in tough periods is the name of the game for long term returns and compounding, as well as the more risk averse. By potentially making money or not losing as much, the assets and strategies mentioned are far better suited to protecting capital and enabling long term compounding of your wealth, and particularly so compared with financial assets which are being meaningfully devalued. Furthermore, they offer a way of crystallising and cashing in strong equity and property gains of the last few years permanently, while still offering growth potential in the future. 3. Take Advantage of Volatility 4. Emphasize Better Value Niche Assets In summaryThere is much you can do not to be a deer in the headlights. Inflationary periods haven't been seen for a long time and most investors need to learn how to adapt to this different environment while it lasts. The ostrich approach with a portfolio suited to an entirely different economic regime doesn't work well when inflation is here. If you're losing large money, it's probably because your portfolio is poorly diversified and extrapolating history that is no longer with us, rather than being adapted to the times. It is far more prudent in current circumstances to adapt to the new investment environment, and buy a broader mix of assets that provide diversification and resilience. This includes a wide range of alternatives, managers that can take advantage of volatility, and better value niche assets. True diversification is the only free lunch in town right now and there is a delicious smorgasbord on offer to choose from. Venison and ostrich is missing from the menu. Funds operated by this manager: WealthLander Diversified Alternative Fund DISCLAIMER: This Article is for informational purposes only. It does not constitute investment or financial advice nor an offer to acquire a financial product. Before acting on any information contained in this Article, each person should obtain independent taxation, financial and legal advice relating to this information and consider it carefully before making any decision or recommendation. To the extent this Article does contain advice, in preparing any such advice in this Article, we have not taken into account any particular person's objectives, financial situation or needs. Furthermore, you may not rely on this message as advice unless subsequently confirmed by letter signed by an authorised representative of WealthLander Pty Ltd (WealthLander). You should, before acting on this information, consider the appropriateness of this information having regard to your personal objectives, financial situation or needs. We recommend you obtain financial advice specific to your situation before making any financial investment or insurance decision. WealthLander makes no representation or warranty as to whether the information is accurate, complete or up-to-date. To the extent permitted by law, we accept no responsibility for any misstatements or omissions, negligent or otherwise, and do not guarantee the integrity of the Article (or any attachments). All opinions and views expressed constitute judgment as of the date of writing and may change at any time without notice and without obligation. WealthLander Pty Ltd is a Corporate Authorised Representative (CAR Number 001285158) of Boutique Capital Pty Ltd ACN 621 697 621 AFSL No.508011. |
9 Mar 2022 - Performance Report: L1 Capital Long Short Fund (Monthly Class)
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Fund Overview | L1 Capital uses a combination of discretionary and quantitative methods to identify securities with the potential to provide attractive risk-adjusted returns. The discretionary element of the investment process entails regular meetings with company management and other stakeholders as well as frequent reading and analysis of annual reports and other relevant publications and communications. The quantitative element of the investment process makes use of bottom-up research to maintain financial models such as the Discounted Cashflow model (DCF) which is used as a means of assessing the intrinsic value of a given security. Stocks with the best combination of qualitative factors and valuation upside are used as the basis for portfolio construction. The process is iterative and as business trends, industry structure, management quality or valuation changes, stock weights are adjusted accordingly. |
Manager Comments | The L1 Capital Long Short Fund (Monthly Class) has a track record of 7 years and 6 months and has outperformed the ASX 200 Total Return Index since inception in September 2014, providing investors with an annualised return of 23.61% compared with the index's return of 7.37% over the same period. Over the past 12 months, the fund's largest drawdown was -7.21% vs the index's -6.35%, and since inception in September 2014 the fund's largest drawdown was -39.11% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in February 2018 and lasted 2 years and 9 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by November 2020. The Manager has delivered these returns with 6.7% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 three times over the past five years and which currently sits at 1.07 since inception. The fund has provided positive monthly returns 79% of the time in rising markets and 64% of the time during periods of market decline, contributing to an up-capture ratio since inception of 100% and a down-capture ratio of 3%. |
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