Quay podcast: How high rates are impacting REITs

Quay Global Investors

 September 2023

Quay's Co-Principal and Portfolio Manager, Justin Blaess, speaks with Bennelong Account Director, Jodie Saw, about the impact of high rates on REITs (less of an issue than most expect), the mismatch between supply and demand (the main drivers of return), the opportunities emerging globally, and Quay's long-term earnings outlook.

Funds operated by this manager:

Quay Global Real Estate Fund (AUD Hedged), Quay Global Real Estate Fund (Unhedged)

For more insights from Quay Global Investors, visit quaygi.com

The content contained in this audio represents the opinions of the speakers. The speakers may hold either long or short positions in securities of various companies discussed in the audio. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the speakers to express their personal views on investing and for the entertainment of the listener.

Episode 37: Cultivating change - Nestlé's leading approach on sustainability and creating shared value

Magellan Asset Management

August 2023

In this episode, Magellan's Portfolio Manager Elisa Di Marco, and Investment Analyst, Tracey Wahlberg discuss how environmental values are driving corporate culture with Rob Cameron, Nestlé's Global Head of Public Affairs. They talk through the company's net zero approach, and its commitment in leading its supply chain to embrace regenerative agriculture, recycling, packaging innovation and human rights. And Rob Cameron explains how these initiatives benefit shareholders, through growth opportunities and cost discipline.

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

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. 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 a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.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 a Magellan 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. Magellan 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 Magellan. 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. Magellan 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 Magellan 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 Magellan.

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Sorting bubbles from justified inflations!

Alphinity Investment Management

August 2023

Funds operated by this manager:

Alphinity Australian Share Fund, Alphinity Concentrated Australian Share Fund, Alphinity Global Equity Fund, Alphinity Sustainable Share Fund

Disclaimer
The information on this website is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document and the relevant Target Market Determination (available on the Apply Now page on this website) before making a decision whether to buy or hold a financial product.

Fear Not - 5 Steps to Successfully Navigate a Stock Market Fall

Marcus Today

August 2023

No doubt a lot of you, scarred by the GFC, by the 2020 pandemic-inspired drop in the market, or by the next potential sell-off, are constantly worried about a significant market correction. It's no fun investing in 'fear', and if that's you, then let me tell you about fear, and in so doing, rid yourself of the constant worry that the stock market is about to fall over and destroy your financial expectations. 

Sidenote: Anyone who is wealthy, inactive, or incapable of selling can stop reading here. 

First, You Need to Understand Fear

Fear and Clickbait

Clickbait, in it's natural form, starts with the words "5 Things...". To capitalise on that, we chuck in some of the top clickbait keywords, and then, if the glorious moment (as now) presents, we throw in some fear. "5 Things", the keywords "Warren" and "Buffett", and a small sprinkling of fear, and you have the most commercial headline in finance. It goes like this: "5 Reasons Warren Buffett Thinks the Stock Market Will Crash" Publish and wait. The bottom line is that fear is just part of the great game that is the stock market (any market). It creates the lows, it creates the best opportunities to make money, and for the finance industry, it is gold. Whether it is a broker looking for an order, a media person looking for attention, or a financial planner looking to convince a client that they need them, fear gets more traction than optimism, fear gets attention, and fear gets clicks. So when the stock market drops 5% in a day, there are a few things you don't do. You don't join in! Fear makes you vulnerable as an investor. It distorts your normally objective state of mind. If you get fearful when the market loses it's head, you become part of the herd. Far better if you recognise it for what it is, an emotional "moment" in other people's minds, and think about how you can exploit it. It will vary depending on the sort of investor you are, and the sort of risk appetite you have.

A 5-Step Simple Plan of Action for You - When the market loses it's head in fear

1) Stay cold, objective, and logical. Be 'Spock'. Look down on the fear, don't join in. Being emotional will not help you, it will cost you.

2) Accept what your shares are worth now. Don't dwell for a moment on the highs, and how much you were worth. The highs are gone and there's nothing you can do about it. Anchor yourself to yesterday's prices and it will deliver nothing but regret and a feeling of stupidity. Look at the bottom of the spreadsheet. That's what you're worth. Accept it.

3) Get excited. The market only presents great opportunities occasionally. One is coming. It is from moments like these that quick money is made.

4) Take an informed guess at what you think is going to happen next. The only thing that matters is what's going to happen, not what has happened. Read the Marcus Today newsletter and decide for yourself if the sell-off is a blip or a trend. 

5) Decide what to do, if anything. Understand that no one knows. Do your best. Just decide. And live with it. Accept the outcome, right or wrong. The only crime is deciding nothing and letting it all happen to you. 

So, My Thought Process in Preparing for the Next Sell Off Goes Like This:

1) Take ten seconds - For a few moments of weakness, I thought about how I could have called this earlier in the newsletter, before each fall in the market. Tiger Woods says you are allowed ten seconds to express your emotion after a golf shot. But that's all. Take ten seconds. It's good for you. But there's nothing to be done about that now. It is what it is. Time to move on and decide what to do next.

2) Identify the core issues - I read a lot (as always), and quickly (it's pretty obvious) identified the core of the issues for the last correction. Macro stuff. In this case, inflation, interest rates and the fear of a US recession, with a sprinkling of China lockdowns and Russian risk.

3) Decide if it's a 'blip' or a 'trend' - I made an assessment of whether the main issues were likely to persist, or turn on a sixpence. I decided they were more likely to persist.

4) Do something, or decide to do nothing - I sold the three market-related ETFs in our 'Strategy Portfolio', and almost every stock in our 'Ideas Portfolio'. I'm good at selling, it's a thing I do well. You should learn to do it. It's cathartic. You wake up the next day hoping the market collapses, rather than fearing it will. It's empowering to have cash and be "ready to go".

5) Take it day by day until the bottom - Now the game is to watch and wait for 'peak fear'. The market will bottom one day. It could be tomorrow, or it could be in a year. You must take it one day at a time. Wake up every morning and react. There's no predicting it. I know I'll make more money in the recovery from the bottom, and more than I lost in the last few days of any correction. If I can get it right, and if I can time it right for our subscribers, it will be fabulous. And that's how you approach this moment when it comes again. With the intention to exploit everyone else's fear. By the way. You can time the bottom. Don't listen to those feeble commentators that say you can't. They want it to be impossible, so they don't have to do it. For financial professionals, it's a lot more effort handling active clients than it is handling docile 'buy and hold' sheep, and the more clients they can convince that timing can't be done, the less activity they incur for the same amount of fees. Just saying. 

The Bottom Line

You should welcome corrections and other people's fears. The most exploitable moments of the market are the fabulous, exponential, irrational, exuberant bits at the top and the most fearful, despondent, capitulations at the bottom. They are the bits, the extremes, and the opportunities, that make the market worthwhile. Those extremes, those moments of stupidity, absurdity, farce, ridiculousness, and nonsense are brought on by other people's irrational fear and exuberance. You should expect them, look forward to them, and use them, not avoid them. A good investor watches and exploits the herd. They don't join the herd. Let that be you.

Author: Marcus Padley, Founder of Marcus Today

Funds operated by this manager:

Marcus Today Equity Income SMA, Marcus Today Growth SMA

Compelling case for bonds as recession looms

JCB Jamieson Coote Bonds

August 2023

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)

Important Information

This article has been prepared by JamiesonCooteBonds Pty Ltd ('JCB') ACN 165 890 282 AFSL 459018. This article is supplied on the following conditions which are expressly accepted and agreed to by each interested party ('Recipient').

The information is provided only to wholesale or sophisticated investor Recipients as defined by the Corporations Act 2001 (Cth). JCB is not licensed in Australia to provide financial product advice or other financial services to retail investors. The information in this article is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.

The information is not intended for any general distribution or publication and must be retained in a confidential manner. Information contained herein consists of confidential proprietary information constituting the sole property of JCB and respecting JCB and its investment activities; its use is restricted accordingly. This article does not purport to contain all of the information that may be required to evaluate JCB or their funds and the Recipient should conduct their own independent review, investigations and analysis of JCB and of the information contained or referred to in this presentation.

Neither JCB nor their representatives and respective employees or officers (collectively, 'the Beneficiaries') make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of the information contained in this article or subsequently provided to the Recipient or its advisers by any of the Beneficiaries, including, without limitation, any historical financial information, the estimates and projections and any other financial information derived there from, and nothing contained in this article is, or shall be relied upon, as a promise or representation, whether as to the past or the future. Past performance is not a reliable indicator of future performance. The information in this article has not been the subject of complete due diligence nor has all such information been the subject of proper verification by the Beneficiaries.

Except insofar as liability under any law cannot be excluded, the Beneficiaries shall have no responsibility arising in respect of the information contained in this article or subsequently provided by them or in any other way for errors or omissions (including responsibility to any person by reason of negligence). An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor's objectives, financial situation and needs. For further information and before investing, please read the Product Disclosure Statement ('PDS') which is available at www.jamiesoncootebonds.com.au.

The Experiences Megatrend

Insync Fund Managers

August 2023

Despite Covid's interruption it has continued to gain momentum. Its recovery is proving remarkable, as experiences remain a potent megatrend with substantial growth potential ahead, even amidst short-term economic woes.

Despite the headlines throughout the pandemic and general market commentator's gloomy predictions, our research at Insync told us otherwise. For players that had strong capital bases, tight reins on expenses, and prudent investment allocation strategies, they could endure the worst the pandemic could throw at them.

These businesses emerged stronger, such as the prime stock in our portfolio did. Many of its peers however weren't as strong, with some folding or forcibly downsized. Additionally, entire sectors of travel/experiences almost collapsed (e.g. cruise lines). For those left standing, their hold on the market and thus their margins became bigger and stronger. An increase in interest rates and inflation had minimal impact on their performance in the post pandemic recovery.

These businesses emerged stronger, such as the prime stock in our portfolio did. Many of its peers however weren't as strong, with some folding or forcibly downsized. Additionally, entire sectors of travel/experiences almost collapsed (e.g. cruise lines). For those left standing, their hold on the market and thus their margins became bigger and stronger. An increase in interest rates and inflation had minimal impact on their performance in the post pandemic recovery.

What and who is driving this megatrend?

Over the past decade, the desire of consumers has shifted towards experience-based offerings and is influencing people's spending priorities. This shift spearheaded initially by millennials has spread across all age groups. Ironically it gained further traction from covid's travel restrictions. A proof point can be found in air travel; that whilst business trips are relatively flat compared to pre-covid, overall commercial flights hit a global record in June this year.

A significant majority of 74% of Americans, as a further example, now prioritize experiences over material possessions according to a third-party research study. This is no different to us here in Australia and New Zealand or in Europe.

Notably, millennials and Gen Zers are leading this trend as travel becomes an increasingly regular and a vital priority for these age groups . With 44% of travellers aged 18 to 34 asserting that travel is more important post-pandemic, it's evident that this generational shift is taking hold.

The fast approaching impact of AI on this megatrend.

With AI developing quickly it is vital to understand its impact on business models of all companies that we invest in. Our research shows that online travel agencies(OTAs) are extremely well placed, contrary to many investors placing them in the AI loser's basket.

This is because the OTAs operate far downstream of where AI will have its heaviest and nearest impacts. Consider this single aspect; OTAs employ tens of thousands of staff in local markets around the world to source then continue to manage the fragmented accommodation supply to make it homogenously, digitally bookable globally. Importantly, our prime holding is already investing heavily in utilising AI.

This is a critical piece of OTA infrastructure that the likes of Google or ChatGPT will both struggle to execute and match the capabilities of dominant OTAs. Indeed Google recently tried and failed to gain a foothold in this sector after significant investment and effort.

Funds operated by this manager:

Insync Global Capital Aware Fund, Insync Global Quality Equity Fund

Disclaimer
Equity Trustees Limited ("EQT") (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) ("Insync"), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.

Hybrid securities - How risky are they?

PURE Asset Management

August 2023

Hybrid securities is a catch-all term and refers to both preference shares and convertible loan notes. They are financial instruments that combine the characteristics of both debt and equity. This article will focus on Convertible Loans, or simply, Convertibles.

These instruments, like traditional debt, pay a rate of interest and have more protections than shares, but they also have the option to be converted into the shares of the Company at some point in the future.

The conversion feature makes them attractive to investors who believe that the value of the Company's shares will increase over time. By holding a Convertible, investors have the potential to participate in the share price appreciation, while also receiving interest while they wait.

The conversion price is typically set at a premium to the current market price of the shares, or it can be based on a discount to a future pricing event, for example an IPO. When the share price rises above the conversion price, the holder can convert into shares and make a profit.

Convertibles can be a way to gain exposure to both income and growth, but like any investment they come with some risks, which could largely be considered to sit between the risk of shares and the risk of traditional debt.

What are the main risks?

Credit risk

The largest risk of a Convertible is credit risk.

Credit risk is the risk of default, if the borrowing Company is unable to pay the interest on the loan, or even payback the original capital, which may be result in a partial or a complete loss of capital.

A key factor influencing the level of risk is the level of security attached to the Convertible. The capital of all companies sits in a capital stack (see below). At the top of the stack is a senior secured loan and at the bottom, equity. The risk of an investment is largely correlated to where the capital sits in the capital stack. Convertibles are typically the top three, so less risky than preference or ordinary shares. (Note that a Company may not have all the layers in the table, but most will have several.)

In an efficient market, higher levels of credit risk will be associated with higher borrowing costs as the investor wants to receive a higher return for the perceived risk of the investment. In simplistic terms, the higher up the stack, the more other investors' capital there is that would first need to be lost, before the investors above them suffers loss.

In a private market, lenders and borrowers negotiate directly. A savvy lender/private debt manager will attempt to negotiate with the borrower the appropriate terms and conditions, controls, reporting obligations, covenants, and security to ensure the lender has greater influence over the loan terms in an effort to mitigate potential loss risk. Covenants and ongoing borrower reporting requirements are negotiated in order to provide protection and early warning of changing risks.

Liquidity risk

Liquidity risk refers to the inability to sell or trade an investment when needed.

Unlisted hybrid securities are an illiquid investment, and therefore carry the risk that if something goes wrong in the Company, such as a credit risk event, the holder may not be able to liquidate their position in a timely manner.

While hybrid listed on the ASX may offer some liquidity, most are often less liquid than the ordinary shares making them harder to sell.

Conversion risk

When the Convertible converts into shares, the number of shares to be issued to the holder will typically be calculated by dividing the loan amount plus any accumulated interest by a certain share price. This conversion price will often be pre-determined as a fixed price, or it can be priced with a reference to future prevailing share price.

What is not know at the time of investing is what level of profit, or even loss, will result at the conversion event. Some Convertibles have an enforced conversion event, for example at IPO, and in other cases, the Conversion is at the direction of the holder.

If the holder retains the right to choose and elects not to convert, the Company must repay the capital plus any accrued interest. This structure is preferable as it carries less risk of loss on conversion if the Company has performed poorly.

Convertibles vs. traditional debt

Convertibles can be more complex than traditional debt and may have a higher level of return because of the attractive feature of being able to participate in the upside if things go well.

Convertibles vs. equities

Equities represent ownership in a Company, and their value can fluctuate based on a variety of factors such as company performance, industry trends, and overall market conditions. They can be considered riskier than debt because the value of the shares can fluctuate greatly.

Convertibles, on the other hand, pay a fixed or floating rate of interest and also have some of the characteristics of ordinary shares, such as potential for capital appreciation. They tend to be less risky than equities because they typically provide a consistent income stream and also have some or all of the protections intrinsic to debt.

As with any investment, it's important for investors to conduct their own research and consider their own risk tolerance before investing in hybrid securities. It's also important to diversify your portfolio and not to put all of your eggs in one basket.

Funds operated by this manager:

PURE Income & Growth Fund, PURE Resources Fund

The dangers of long COVID

Challenger Investment Management

August 2023

Funds operated by this manager:

Challenger IM Credit Income Fund, Challenger IM Multi-Sector Private Lending Fund

Investing Essentials: How a financial adviser can help

Bennelong Funds Management

August 2023

Many of us want to save effectively, invest well, and generate sufficient funds to pay for a home, children's education, travel and, ultimately, a secure retirement. But navigating a complex financial landscape can be intimidating. Fortunately, there are professionals who can guide you.

Seeking the advice of a qualified financial adviser may add significant value over your lifetime. Here is a snapshot of some of the things an adviser can assist with.

Budgeting and managing debt

In order to invest, you need to work out where the money will come from. A financial adviser can help you manage your income more effectively by carefully identifying and monitoring your spending patterns and expenses.

They can also help you get the full picture on your debt load and work out which parts are:

• 'inefficient' debt - borrowing to buy goods, services and assets that are known to depreciate in value, or have no value once used; and
• 'efficient' debt - where you buy assets that generate assessable income and have the potential to increase in value.

Insurance: the importance of security

Adequate insurance coverage to provide you and your family financial security is crucial, particularly if you are self-employed or own a business.

A mix of suitable life insurance, income insurance, business insurance and general insurance is highly individualised. Your financial adviser's expertise in this area can save you a great deal of time and worry.

Building an investment portfolio

Only after budgeting and insurance do we get to investment. Your financial adviser will gather all of the relevant information on your personal financial circumstances, objectives and risk tolerance, and help you choose the right types of investments to fit your needs, personality, goals and time horizon.

Your adviser can help you build a diversified investment portfolio, often spread among a range of asset classes to aim for positive returns while balancing the overall level of risk. What's more, they will regularly assess the plan to ensure it continues to meet your needs, altering your investments as you reach different stages of life (for example, wealth accumulation for younger investors versus a steady income stream for retirees).

The three pillars of retirement

Your financial adviser should be an expert on Australia's 'three-pillar' retirement-funding system: compulsory superannuation, the government-funded age pension, and voluntary contributions by individuals to their super accounts.

Australia's superannuation system can seem complicated, and most people can benefit from sound technical advice from a professional - whether it's to maximise the benefits, or minimise the tax burden.

What to look for

Choosing a financial adviser is an important decision. Ideally, it will be a lifetime partnership (and even a multi-generation partnership, taking care of your family's needs). You need to establish a strong rapport: they will know all about your financial affairs, your dreams and aspirations, and even how you want your affairs managed after you die.

You therefore need to ensure the person is a trustworthy and knowledgeable professional, and someone with whom you're comfortable working with over the long term, who can regularly maintain and review your financial goals as you enter different stages of life.

There are several professional bodies who may be able to assist you in selecting a financial adviser, such as the Financial Advice Association Australia's find a planner page.

For more insights visit www.bennelongfunds.com

Disclaimer

The content contained in this article represents the opinions of the author/s. The author/s may hold either long or short positions in securities of various companies discussed in the article. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the author/s to express their personal views on investing and for the entertainment of the reader.