NEWS
30 Mar 2022 - A tumultuous start to '22!
|
A tumultuous start to '22! Insync Fund Managers March 2022
Economy-wide events dominate the headlines Big inital swings are a typical reaction to a change in the macro-economic outlook and are not cause for us to react. This movement was primarily driven by the largest swing towards value stocks in over 20 years. As at the end of February, the 'value' style category fell -2.8% CYTD with 'growth' styles falling -12.5%, according to JP Morgan. The lesser known 'quality' style category where Insync resides is neither value nor growth, although we tend to hold stocks the market categorises as Growth. 2022 marked the 5th worst start for S&P 500 since 1927. Inflation fears have the market pricing in 5-6 interest rate rises this year, precipitating the heavy swing initially, with Ukraine's invasion by Russia creating price spikes in both energy and commodity prices as well. Markets hate uncertainty. It's no surprise then that material and energy stocks were the best performers in February (Insync has zero exposure to these sectors due to their low ROICs through the cycle). It's highly probable that the negative macro factors will slow economic growth. This in turn, will then favour a move back to profitable growth companies (rather than growth stocks overall). These are the type of stocks we hold. Thus, we liken the current portfolio to a coiled spring. When investors soon refocus on company fundamentals, the share price performance of quality businesses then rebound quickly and sharply. This usually 'surprises' commentators and investors alike. Earnings growth across the portfolio continues to compound strongly despite macro shifts, with valuations becoming more attractive.
Governance factors are why Russia and its peers don't appear with Insync Russia's invasion of Ukraine is one of the greatest tragedies of our lifetime. We have no direct exposure to Russian equities and virtually zero indirect exposure. The simple reason is that Russia is a Kleptocracy run by a ruler who has used his poitical power to systematically steal billions of dollars of its national treasure owned by its people. When there is no rule of law - and therefore no shareholder rights - valuations do not matter. The risk of near total loss of capital is too high. Companies with strong governance nearly always do the right thing and also deploy capital wisely.
Why we are confident that sustainable growth companies are poised to perform strongly Almost every big slowdown in the past has been preceded by a rise in energy prices and Federal Reserve rate hikes.Going forward then, markets will likely start shifting focus to the prospect of weaker economic growth and refocus on investing in businesses with durable, sustainable earnings growth and profitability. This economic backdrop propels precisely the kind of stocks we hold. Overlaid with identified megatrends, it enables these companies to thrive irrespective of higher rates or slower growth. Meantime, in the near term expect ongoing volatility in markets and most equity funds as well including our own.
We have often discussed the difficulty and danger of market timing. The probability of getting it right more often than wrong is extremely low. Right now, investor sentiment is very bearish with the AAII investor sentiment survey at its lowest point since April 2020. Fund managers overall reflect this view, holding the highest level of cash since the covid lows and at the bottom of the GFC.
This is why we remain fully invested when markets swing wildly as one would expect in these moments of macro-economic uncertainty. For good reason we didn't react in previous occasions such as now, and we won't in future ones either. This is also why we remain fully invested unlike many of our peers. Should timing be desired in the hope of avoiding the dips and riding the peaks, then we believe this is a decision for the investor and their adviser. We continue with our usual rifle-like approach of investing in the most profitable companies with a long runway of growth fuelled by megatrends. We refrain from trying to time these shifts, as this lowers risks and, longer term, aids returns. Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund |
30 Mar 2022 - Do Multiples Matter?
|
Do Multiples Matter? Equitable Investors March 2022
Do valuation multiples matter? There's broadly two schools of thought - one that purchase price dictates your future return and the other that good companies will deliver growth in time to drive value higher, whatever the current price is. Buying a stock on low multiples is no guarantee of either future multiple expansion or earnings growth. Outside times of panic you can expect there is some logic driving the sellers of those low multiple stocks. But an excessive price today can burden a company with implied growth expectations that it just can't meet. In a different era, former dot-com darling Sun Microsystems' CEO, Scott McNealy, expressed it well:
Size is an important factor - Sun was "at scale" with >$US10 billion of dollars of annual revenue and its ability to grow into its valuation was limited. A microcap today on 10x revenue that is just beginning to penetrate its market with a competitive advantage may well be able to prove it was a bargain retrospectively. So multiples only mean something with context and analysis. Funds operated by this manager: |
29 Mar 2022 - The central bank dilemma
|
The central bank dilemma Kardinia Capital March 2022 |
|
Jerome Powell's re-election as Federal Reserve chair late last year was a relief to investors, but a few short months later his credibility is now on the line. As economists continue to argue as to whether inflation is transitory or permanent, political parties know full well that inflation is disastrous at the ballot box. The US midterms will be held in November and polling doesn't look good for the Biden administration. While the 2024 full term election is still a while away, inflation is rising. Gasoline price increases are toxic to the US voter and the prices at the pump are already at record levels, recently surpassing the 2008 spike. CPI is almost certainly going to be north of 8-9% year on year over the next few months, which is going to light a fire under the Fed. 12-month percent change in CPI for All Urban Consumers (CPI-U), Inflation is taking off, but the outlook for the global economy remains uncertain. China has just announced a GDP growth target of 5.5% this year, the lowest in more than 30 years. Russian credit has just been downgraded to junk, while global sanctions are already creating material market distortions. Meanwhile, the effects of higher oil prices are rippling across the economy. We believe those prices are here to stay, due largely to geopolitical events and ESG trends. Russia is the world's largest net exporter of oil and gas combined. According to Goldman Sachs, Russia supplies 11% of global oil consumption and 17% of global natural gas consumption (and as much as 40% of Western European consumption). However, the US has banned the import of Russian oil and gas, the UK is phasing out oil imports by the end of 2022, and the EU announced plans to cut imports of Russian gas by two thirds within a year. The world needs to replace this supply, but OPEC has already announced that it has no plans to increase production in response to the Russia/Ukraine war. US trade envoys have been dispatched to Venezuela, with suggestions that a Saudi Arabian trip is in the planning. Of course, the US has the potential to bridge some of the shortfall by ramping up its own unconventional production; however, that appears unlikely given the US administration was elected on a clean energy platform. Energy supply was already under pressure from ESG trends. In 2020, BP announced a plan to cut oil and gas production by 40% over 10 years and pivot towards renewables. Last year, Shell announced that its oil production had peaked and would fall 1-2% per annum as it targeted net zero emissions by 2050. This supply shortfall is occurring just as energy demand is returning after the COVID-induced lockdowns of the past two years. There is no easy solution. We do not believe there will be a quick end to the Russia/Ukraine conflict, meaning energy and commodities prices will remain elevated. The resources and energy sectors should generate attractive returns in 2022, with Australia in the box seat to outperform the rest of the world given its stable, resource rich environment. It's also worthwhile watching the credit and debt markets, which are so deep and more liquid that equity markets (and often equity investors) overlook the signals these markets provide. The 2yr/10yr year US yield curve is flattening, with credit markets signalling that investors are losing confidence in the economy's growth outlook. Often it can be difficult to predict the trigger for an economic downturn, but in this case it could be the Fed raising the federal funds rate itself that causes a downturn. |
|
Funds operated by this manager: Bennelong Kardinia Absolute Return Fund |
|
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. |
29 Mar 2022 - Portfolio positioning in a time of uncertainty
|
Portfolio positioning in a time of uncertainty Loftus Peak 21 March 2022 
War in Europe. Unthinkable one month ago. War in Ukraine The unprovoked conflict in Ukraine has unleashed a human tidal wave of misery, dislocation and death, the scale of which has not been seen since World War II. A columnist for the New York Times referred to the war as "the most dangerous confrontation for the world since the Cuban missile crisis (of 1962)." Just one month ago, we wrote of the onset of higher interest rates and inflation as major factors influencing markets, having considered but not believing that Putin would be so irrational as to start a war. This is not the correct forum to deal with the human and geopolitical consequences of this, so we won't. But it is appropriate to ask: How will the war in Europe affect investors globally? The broadest economic sanctions ever enacted have resulted in the collapse of the ruble (by 50%), the delisting of Sberbank (one of Russia's largest) on some European exchanges, and a well-advanced movement by some countries to source oil and gas from places other than Russia.
Lines in Russia at ATM's for Sberbank. This is forcing up the price of energy, at the pump and the meter, which will likely drive inflation even higher than its current levels, spurring the US Federal Reserve to continue its tightening policy. But the Fed will also consider the possibility that higher energy costs could suppress demand, thus reducing the need for more serious interest rate rises - an unscripted but possible outcome. Separately, we are of the view that now that Russia is considered an unreliable energy partner for the Europeans, the impetus to de-carbonisation will accelerate. Portfolio positioning We do not know how this will end, but last month we wrote highlighting the quality of the portfolio. "Irrespective of macroeconomic conditions, this (quality) has always been an integral part of the portfolio construction process, and was a decision informed by the numerous corrections and crashes witnessed by the investment team over their lifetimes. Despite the short-term volatility and underperformance of a select few names, we believe the Fund is well positioned for a period marked by slowing economic growth and rising costs of capital because of the inherent characteristics of the big disruptive companies, which are amongst the strongest in the world. Further, earnings growth in the majority of the Fund's holdings continues to be strong, adding to the conviction we have in the long-term secular trends to which we are exposing our clients. Although the short term might remain volatile and uncertain, we believe that over the medium and long term the safest place to be is in quality companies riding secular tailwinds. Disruption no longer implies excess risk During the early days of disruption, between 1995 and 2005, there was considerable investment risk as typically the mechanism was via start-up companies, which mostly were light-on for profits, let alone cashflows and balance sheets. It was by no means clear, for example, that classified advertising would migrate on-line, that cars would go electric, movies would be shown on mobile phones or that taxi services would be replaced by Uber and the like. Investors who bought before the bursting of the 2000 bubble did not do well… for a while. But those that understood what Apple, Amazon and Google were doing on the global stage - and that part is very important - made simply stellar returns. Fast forward to today. The word disruption, for reasons related to its investment history as well as its more general meaning, still has a negative connotation. It is not unfair to prefer the safety of an 'undisrupted' world to the uncertainty that disruption implies. But it is time to move on. Some of those early-stage disruptive companies are listed in the top ten by value in the world today, including Amazon, Nvidia, and Taiwan Semiconductor Company. Properly managed, disruption no longer need equate to excessive risk. Funds operated by this manager: |
28 Mar 2022 - Manager Insights | ASCF
|
|
||
|
Chris Gosselin, CEO of FundMonitors.com, speaks with Filippo Sciacca, Director of Investor Relations & Asset Management at ASCF. 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.
|
28 Mar 2022 - New Funds on Fundmonitors.com
|
New Funds on FundMonitors.com |
|
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. |
|
|
||||||||||||||||||||||||||||
| Warakirri Diversified Agriculture Fund | ||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
| View Profile | ||||||||||||||||||||||||||||
|
L1 Long Short Fund Limited (ASX: LSF) |
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
| View Profile | ||||||||||||||||||||||||||||
|
L1 Capital Global Opportunities Fund |
||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
| View Profile | ||||||||||||||||||||||||||||
 |
||||||||||||||||||||||||||||
| CIPAM Multi-Sector Private Lending Fund | ||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||
| View Profile | ||||||||||||||||||||||||||||
|
Want to see more funds? |
||||||||||||||||||||||||||||
|
Subscribe for full access to these funds and over 650 others |
||||||||||||||||||||||||||||
28 Mar 2022 - Like kites, do portfolios rise against or with the wind?
|
Like kites, do portfolios rise against or with the wind? Spatium Capital March 2022 For the runners, cyclists or outdoor sportspeople within our readership, a handful of circumstances will almost always result in a proverbial groan: headwinds. That gust of wind that makes turning that corner on the bike or spending the next half of a game with a wind impediment less enjoyable, is unfortunately a part of exercising amongst the elements. Headwinds, as it were, have become known as such a physical inconvenience that they are also a common analogy for when situations in life are met with obstacles that inhibit progress. The counter to a headwind therefore is a tailwind, where benefits and/or privileges fuel our progress, bypassing or simply overcoming the obstacles (or headwinds) that come our way. If we then take this concept and apply it to a fund manager's portfolio, how many would attribute their performance success to an investing skill or purely an outcome of a bull market? Put another way, did the manager overcome genuine obstacles (a headwind) to achieve success, or were they the beneficiary of a rising market (a tailwind)? Recent research published by social scientists Dr Gilovich and Dr Davidai in 2016 suggests that people are more likely to both recall and overweight their headwinds more poignantly than those of their tailwinds. Their theory claims that when people benefit from a tailwind, the satisfaction is adapted to quickly and is relatively short-lived, whilst a headwind's dissatisfaction is 'consumed' over a longer-period. Using the sporting analogy at the top of the above paragraph, many can relate to the internal monologue that goes on when a headwind is faced; often, longing for the tailwind. Usually, this monologue does not end until the tailwind is experienced. At which point, a brief sense of relief is felt and the team or individual go about adjusting to the new advantage. Almost without a second thought! This tendency to recount information in a way that confirms one's view (confirmation bias) that they had more obstacles than benefits has been coined by Gilovich and Davidai as the headwind-tailwind asymmetry. It is suggested that because a headwind is an obstacle that needs to be addressed, whether that be in a career, sport, relationship or an investment context, there is a greater propensity for these events to be etched into our memories. Their very existence can in fact precede critical junctures and choices in our lives. Conversely, a tailwind is a privilege that often goes unseen by its very nature of not necessitating significant effort or attention. It's harder to recount a privileged education, upbringing, career opportunities or investment successes when they were already occurring without requiring effort. At Spatium, we pride ourselves on having outperformed the benchmark (a headwind) without having a beta in excess of the benchmark, or resorting to leverage or gearing within the fund (an easy 'tailwind' during a rising market environment). Conversely, when the market winds inevitably change, Spatium has had a long-term average of losing only half as much as the benchmark. When assessing managers, portfolios, or even individual companies, one must be critical: "has this business overcome genuine headwinds, and has the strength, knowledge and processes to do so again in the future" or, "has this business simply benefitted from structural tailwinds", such as declining interest rates, or similar paradigm shifts, those of which may be unlikely to be repeated at the same amplitude (or in the case of rising interest rates, potentially work as a headwind) into the future. In aggregate, one should enjoy just as many tailwinds as headwinds over the years, with the key focus being maximising ones advantage during tailwind periods, and remaining convicted to persevering through intermittent headwinds. Author: Jesse Moores, Director |
|
Funds operated by this manager: |
25 Mar 2022 - Hedge Clippings |25 March 2022
|
|
|
|
Hedge Clippings | Friday, 25 March 2022 Exactly one month ago, Vladimir Putin announced that he had made the decision to launch a "special military operation" in eastern Ukraine, with no plans to occupy Ukrainian territory, and that he supported the right of the peoples of Ukraine to self determination. Both of these claims were of course rubbish. As it turns out, it looks as if the Ukrainian resistance is likely to ensure Russia's occupation will fail, and the country's self determination will prevail - both of which have surprised everyone outside Ukraine, Putin included. Exact details are difficult to confirm, but as of 4 hours ago Reuters were reporting "at least 20,000 deaths" including 5 generals - 5,000 more than Russia lost in nearly 10 years in Afghanistan. In a previous edition of Hedge Clippings, we referred to it as the most dangerous situation since WWII, which depending on one's point of view, becomes potentially more dangerous the more unsuccessful that Russia becomes. Unlikely to back down or withdraw, at what stage does Putin escalate by using ever more powerful weapons? If he does so, at what stage will NATO respond, rather than the current strategy of providing arms instead of armies? Meanwhile, after just one month, news of the war (to call it what it really is) has been pushed off the front pages. Page 1 of today's Sydney Morning Herald has nothing other than a pointer to an article on page 13. The conflict doesn't rate a mention on P1 of today's AFR, possibly understandable as it is a financial newspaper, albeit the war's impact on trade, inflation (oil, gas, cereals), etc prevailing. The UK's Telegraph is not much different, more interested in a 5p. reduction of fuel tax. Maybe all this is caused by the incessant 24 hour news cycle, and the inability for the headlines or the latest news bulletin to "carry" a story - or retain readers' and viewers' interest for any length of time. It used to be said that last week's news was tomorrow's fish and chip wrapper, so maybe nothing has changed, except they don't put the news on the Macca's or Hungry Jacks' carton. And it seems that after an initial "risk-off" shakeout, equity markets have moved back to a "risk-on" stance with the ASX200 up 400 points since the first Russian tank rumbled over the border on 24 February, and the S&P500 up a similar amount since mid March. Meanwhile, other risks, such as energy prices, supply chain shortages, a looming election campaign, higher interest rates, inflation, stagflation, and talks of a US recession (induced in part by the war) remain, or have increased. Luckily there was one "good news" story - or at least an uplifting one, in Ash Barty's retirement, literally at the top of her game, aged just 25. We would consider that she has the world at her feet, with suggestions she might even enter politics. Surely she's too sensible (and honest) for that - although teaching some of them to retire while they're ahead would be a welcome move. News & Insights New Funds on FundMonitors.com Manager Insights | ASCF Pet Humanisation Megatrend | Insync Fund Managers Interest rates, bonds and listed real estate | Quay Global Investors The central bank dilemma | Kardinia Capital |
|
|
February 2022 Performance News Delft Partners Global High Conviction Strategy Bennelong Twenty20 Australian Equities Fund |
|
|
If you'd like to receive Hedge Clippings direct to your inbox each Friday
|
25 Mar 2022 - Fund Review: Insync Global Capital Aware Fund February 2022
INSYNC GLOBAL CAPITAL AWARE FUND
Attached is our most recently updated Fund Review on the Insync Global Capital Aware Fund.
We would like to highlight the following:
- The Global Capital Aware Fund invests in a concentrated portfolio of 15-30 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.
- Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.
- Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.
For further details on the Fund, please do not hesitate to contact us.
AFM Fund Review - February 2022 (pdf format)
25 Mar 2022 - How private debt can help guard against rising inflation
|
How private debt can help guard against rising inflation Revolution Asset Management March 2022 With rising global inflationary pressures mounting, a range of factors are converging to create a new inflationary era. From the demand distortions and supply dislocations associated with the COVID-19 pandemic, geopolitical risks, as well as monetary and fiscal tightening, these factors are expected to increase volatility across financial markets in 2022. The reality of higher inflation and interest rate hikes has prompted asset owners to review their current defensive fixed income allocations and assess the level of risk protection required in order to earn the investment returns needed to meet their targets. Income generated by traditional fixed income sources such as fixed rate bonds are now harder to find. Strategies across private markets, in particular private debt, may be well equipped to deal with the ongoing market volatility and changes to interest rates. In periods of higher inflation, private debt can offer investors a level of protection - being a floating rate asset class means the underlying yield increases as inflation and interest rates increase. Additionally, the long term, patient capital nature of private debt, and the ability to absorb and pass on rising costs mean these strategies can actually benefit from inflation. But senior secured private debt can offer more than that. It's a defensive allocation that can help to preserve capital and provide genuine diversification and yield, whether through the right sub-sectors of private debt or the underlying assets well-positioned to flourish during an inflationary environment. The Australian investable private debt universe is large, and we believe the most attractive sub-sectors include leveraged buyout and private company debt - in businesses with brand and customer strength operating in non-cyclical industries; private and public Asset Backed Securities such as floating rate quality mortgages; and loans to stabilised commercial real estate assets with annual contracted rent. Risk mitigation in senior secured private debt also relies heavily on strong credit discipline. A proactive approach to risk management can help build greater resilience in changing market conditions such as inflationary environments. Revolution Asset Management believes the outlook for private debt remains positive. With a robust deal pipeline, deployment into 2022 is set to be strong. In private company and leverage buy-out loans, the M&A boom of 2021 drove three times the level of activity vs the prior year and 40% higher vs the five year average, and with international borders reopening, this is expected to fuel activity in 2022. In private Asset Backed Securities, warehouse funding is reaching A$10 billion and continues to offer very attractive relative value compared to public Asset Backed Securities. In the current market, we are witnessing significant growth particularly in non-bank lending activity in Australia and New Zealand, which continues to provide attractive opportunities for our portfolio and helps quality non-bank lenders realise their growth plans. Allocating more to higher-yielding, floating rate assets such as private debt could be one strategy to minimise interest rate sensitivity of fixed income portfolios and guard against inflation risk, while at the same time increasing and diversifying sources of return. Author: Bob Sahota Funds operated by this manager: Revolution Private Debt Fund II, Revolution Wholesale Private Debt Fund II - Class B DISCLAIMER This information has been prepared by Revolution Asset Management Pty Ltd ACN 623 140 607 AFSL 507353 ('Revolution'). Performance numbers provided are as at the date of this article, and subject to change. Although every effort has been made to verify the accuracy of the information contained in this document, Revolution, its directors, officers, representatives, employees, associates and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this document or any loss or damage suffered by any person directly or indirectly through relying on this information. The information in this document is not financial product advice and has been prepared without taking into account the objectives, financial situation or needs of any particular person. All investments involve risk. Past performance is not a reliable indicator of future performance. |
