NEWS
13 Sep 2024 - Government Bonds and High Yield Credit Compete for the Podium in a High Interest World
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Government Bonds and High Yield Credit Compete for the Podium in a High Interest World JCB Jamieson Coote Bonds August 2024 When you're chasing those enticing yields, high yield credit funds can seem like a golden ticket. They promise strong returns compared to other asset classes, which might make them look like the smarter choice. But before diving in, it's crucial to understand that not all fixed income assets are created equal. High returns come with their own set of risks, and knowing what those are can help you make more informed investment decisions. The emergence of private credit fundsAs banks cut back on corporate lending, private credit funds have become more popular, offering more competition and financing options. These funds aim to generate returns through various strategies, which require careful consideration. Key factors include:
Understanding these aspects helps investors make informed decisions in this growing market. Credit funds, including those focused on more speculative private credit and property construction loans, often attract investors with the promise of higher returns. These funds offer elevated interest rates because they invest in debt issued by companies with lower credit ratings. While the potential for greater income is appealing, it's essential to understand that these higher yields come with substantial risks. Liquidity: The core concernA hallmark characteristic of genuinely defensive assets is liquidity. Private credit funds often have lower liquidity due to long lock-up periods, longer lead-times for redemptions and infrequent fund trading windows. Since these funds tend to involve direct lending to organisations, the loans do not trade on exchanges, therefore the secondary market to recall or trade capital is extremely low and difficult. For example, during the early days of Covid-19 in March 2020, many fixed income funds, both traditional and alternative, raised sell spreads to effectively gate investor capital, showing that what seemed like a safe investment could be problematic in times of crisis. Default Risk (Volatility): Compromising your hard earned capitalThe primary risk associated with credit funds is default risk. This refers to the possibility that the issuer of the bond or loan may be unable to meet its interest payments and/or repay the principal amount. This can become a real possibility during times of economic stress. The value of these investments can fluctuate dramatically based on a range of factors, including market sentiment, company-specific news, or broader economic deterioration. For example, if a company issuing high yield bonds reports poor earnings or faces operational challenges, the value of its bonds may drop. Similarly, changes in interest rates or economic downturns can lead to sharp declines in the value of high yield credit investments. This volatility means that while you might experience higher returns during periods of economic growth, there's a substantial risk of seeing your investment value decline during downturns or periods of market uncertainty. As with Olympic contenders, where unexpected outcomes can shift the podium positions, in the investment arena, a single default can have significant repercussions. The risk is magnified in high yield credit funds, where issuers are often less stable and more susceptible to economic fluctuations. Just as a single misstep in a crucial race can cost an athlete the gold, a default can lead to substantial losses for investors. Transparency Risk: The price of potential high returnsValuation is a key piece of private credit, affecting returns, risk, the cost and availability of capital. Since valuations are typically periodic with long lags, they may not reflect current market conditions or asset performance. This issue can be worsened where a fund may not fully account for borrower difficulties in its valuations. Inflated valuations can reduce loan liquidity, as there's less incentive to redeem at true values. Unfortunately, this trend is becoming more common across the private credit industry. Property Construction Loans: additional risksProperty construction loans, a subset of private credit funds, come with their own set of risks that can amplify the overall risk profile of high yield credit funds. These loans are typically provided to developers for building residential or commercial properties and are often characterised by high interest rates due to the inherent risks involved. Construction projects can face numerous challenges in tighter times, such as delays, cost overruns, and regulatory hurdles. If a project encounters significant problems or fails to complete on time, the borrower may struggle to repay the loan, increasing the risk of default. The financial health and track record of the developer is critical in assessing the risk of default. Such loans can also be less liquid compared to other investments. If you need to exit your investment before the construction project is completed or the loan matures, you might face difficulties in finding a buyer or could have to sell at a discount. Balancing Risks and RewardsInvesting in high yield credit funds and property construction loans can be a way to achieve higher returns, but it's important to weigh these rewards against the associated risks. Credit investments can offer attractive income opportunities, but they come with the potential for significant volatility and default risk. Property construction loans add another layer of risk. To navigate these risks, a diversified investment approach can help. Balancing high yield credit funds with more stable investments, such as government bonds or investment grade securities, can provide a buffer against the volatility and risk of high yield investments. Additionally, thorough due diligence on the underlying assets and careful consideration of the economic environment can aid in making informed investment decisions. Ultimately, the quality of private credit depends on the investment managers behind it. Their expertise in assessing and monitoring loans, managing risk, and protecting capital is key. Additionally, their experience, industry relationships and track record across various market cycles are essential factors. Government Bonds: A safe haven in a volatile environmentGovernment bonds typically perform well during periods of economic uncertainty and downturns. With sustained inflation and higher interest rates, the real return on existing bonds can become less attractive compared to new issues, which might offer higher yields. However, government bonds retain their appeal due to their stability and lower risk profile. And, within a government bond fund, portfolios are diversified with individual bonds maturing being steadily replaced by newer issues, which helps these funds keep pace with return needs. Government bonds inherent safety can attract investors looking for a refuge amid economic volatility. When interest rates eventually start to decline, the value of existing government bonds with higher coupon rates is likely to rise. Lower rates mean that newly issued bonds will offer lower yields, making existing bonds with higher rates more valuable. Additionally, as the economy begins to recover and inflation pressures ease, government bonds will likely benefit from renewed investor confidence and demand. Navigating Higher Risk in a Challenging EnvironmentCredit funds react differently to the economic landscape. In the current environment of high inflation and interest rates, the risk of default among companies with weaker credit ratings increases. As interest rates start to decline, the situation for high yield credit funds may improve, but not without complexities. Lower rates can reduce the cost of borrowing for companies, potentially easing some of the financial pressure and reducing default risk. However, the recovery in high yield credit markets might be uneven, depending on how quickly economic conditions improve and the specific financial health of the issuing companies. In light of these dynamics, it's crucial for investors to consider how shifts in economic conditions could impact their portfolios. Government bonds may offer increased value as interest rates decline, while high yield credit funds might see some relief if economic conditions improve. For a balanced investment approach, incorporating government bonds can provide stability and potential capital appreciation in a declining interest rate environment. Meanwhile, carefully selected high yield credit investments might still offer opportunities for higher returns, but should be approached with caution and a clear understanding of the associated risks. Which Investment Takes Gold?So, where does that leave investors? High yield credit funds and government bonds each play distinct roles in an investment portfolio, much like different events on the track. High yield funds are akin to the high-risk, high-reward sports, where taking on greater risk can lead to the potential for impressive returns, much like a daring pole vault or a thrilling sprint. These funds might suit investors prepared to handle the volatility and aim for those high yield medals. On the other hand, government bonds are like the marathon--steadily paced and reliable. For investors seeking stability and a steady income, government bonds are your marathon runners, providing a dependable performance over time. They are well-suited for investors who value consistency and want to avoid the unpredictability of higher risk investments. Ultimately, the choice should align with an investors financial goals, risk tolerance, and how they view the economic landscape unfolding. Funds operated by this manager: CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged) |
12 Sep 2024 - Can the Commonwealth Bank of Australia's share price rally continue into FY25?
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Fast food profits Can the Commonwealth Bank of Australia's share price rally continue into FY25? Montgomery Investment Management August 2024 Our domestic large-cap funds have maintained an underweight position in the banks, and even though the Commonwealth Bank of Australia (ASX:CBA) was, for a time, our largest position, being underweight in the sector has cost relative performance thanks to the Commonwealth Bank of Australia's share price rallying as much as 23 per cent year-to-date and 35 per cent last financial year. Our reasoning is relatively straightforward; first, with each bank's position in Australia's banking oligopoly relatively stable - thanks in part to customer inertia and living on an island, and with each one constantly eyeing the others, we find their market shares and relative operating performances rarely vary much in absolute or relative terms. Therefore, trying to pick the short-term outperformance consistently successfully of one bank over the others has often proven to be a fool's errand. Secondly, and importantly, we have not identified a "change" trigger among the banks that justifies significant share price outperformance. Therefore, we do not believe the banks' outperformance can be repeated in 2025. For the major banks, competition remains intense, especially for home loans, and underlying demand for home and business loans is subdued, reflecting moribund economic activity. The Commonwealth Bank of Australia's FY24 cash earnings were higher than consensus analyst expectations, and pre-provisioning operating profit (PPOP) was in line with consensus estimates, driven by higher than anticipated net interest margin (NIM - more on that in a moment). Overall, the result was broadly in line with modest loan growth, expense growth of three per cent, and below-average bad debt expenses. The final ordinary dividend per share was 250 cents, 10 cents higher than analyst expectations and it takes the full-year dividend to $4.65, which is 3.3 per cent up on the previous year. Notably, the dividend reinvestment plan (DRP) will be done with no discount and will be offset by an on-market buyback. The Commonwealth Bank of Australia's FY24 Common Equity Tier 1 capital (CET1) ratio, was 12.3 per cent and 19.1 per cent on an internationally comparable basis. CET1 is a capital measure that was introduced in 2014 as a protective precaution to head off another financial crisis. In the event of a crisis, equity is taken first from Tier 1, which includes liquid bank holdings such as cash and stock. The Commonwealth Bank of Australia's resilience in maintaining its net interest margin (NIM) was a notable highlight in today's results. However, there were some early warning signs, including a potential decline in asset quality, driven by expected pressures on real household disposable income, and a resurgence in mortgage competition. For what it's worth, your author believes we will sidestep a recession this year and the reported slump in consumption will stabilise. From a valuation perspective, it's interesting to observe that while the Commonwealth Bank of Australia estimates its market-implied cost of equity to be around 8 per cent (I note many share market investors are using lower rates to justify stock market valuations for much riskier companies). However, the Commonwealth Bank of Australia maintains an internal cost of capital hurdle at 10 per cent. Investors are using lower rates to justify investing in the Commonwealth Bank of Australia at current prices. By lowering the discount rate, we can dream up a valuation for the Commonwealth Bank of Australia that is close to the price, but the company's prospects aren't as bright as many other companies also listed on the ASX. We view the Commonwealth Bank of Australia's valuation as reasonable but not cheap. Additionally, the price-to-earnings (P/E) ratio is much higher than has been historically evident, even taking into account its status as the premier bank with the best economic business performance. As an aside we think analysts fretting over substantially rising bad debts (credit losses) are misguided - there's plenty of room to cut rates quickly if animal spirits need to be stirred. Author: Roger Montgomery Funds operated by this manager: Montgomery (Private) Fund, Montgomery Small Companies Fund, The Montgomery Fund |
11 Sep 2024 - The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market
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The Evolution and Benefits of Equity Income Funds in Australia's Growing Retirement Market Merlon Capital Partners August 2024 Australia's growing retirement-age population has seen an increase in demand for and the availability of equity income funds over the last few decades. Australia's unique dividend imputation system means investors can successfully derive meaningful income as well as capital growth from holding Australian equities. Equity income strategies regularly make up a large component of the equity allocation for income-focused clients who seek a more defensive asset mix. Equity income funds have evolved significantly over time, beginning in the 1990s, with MLC and Colonial First State (now First Sentier Investors) launching equity income products. These initial products were not specifically focused on paying a regular, smoothed, tax-effective income but rather designed to grow capital before retirement to provide income once in retirement. The mid-2000s saw the equity income fund reimagined, designed specifically to meet retiree's key objectives - income generation, volatility management and capital growth over time. A number of managers developed products to meet these objectives at this time. The wake of the GFC saw growing recognition of the importance of total return generation from income, limiting the need to sell down holdings during market downturns. As a result, the equity income space continued to grow and through the 2010s, various managers launched new income funds, often with full market exposure. Additionally, with the rising popularity in passive investing through the 2010s, income-focused ETFs also emerged from leading ETF providers with the goal of generating income that exceeds the dividend yield offered by the broader market. With an aging population, the addressable market for equity income funds is only growing. Whilst not all equity income funds remain in existence today, there are a variety to choose from with over 15 Australian fund managers offering a product in this space. The need for regular income in retirement is well known and there are various ways to meet cashflow requirements. However, many of these tend to overlook the particularities of retirement. While fixed income products can help to meet an income objective, they fail to provide capital growth to protect against the impacts of inflation. A diminishing capital value on a real basis is inconsistent with the desire of many retirees for a growing capital base for both peace of mind and to leave an inheritance. Another option is to pursue an equity strategy centred solely on capital growth and simply selling down holdings when cashflow is required, rather than investing in income-generating investments. Yet, this ignores the fact that retirees are much more impacted by periods of drawdown than other investors, especially early in their retirement, amplified by their obligation to draw out from accounts when in pension phase. The GFC market crash and COVID-19 selloff in early 2020 demonstrated the serious consequences of needing to sell at an inopportune time and its long-term impact on total return. Skewing the components of equity total return to income removes the need to sell investments to raise cash when required. Proposed alternatives to equity income also ignore the value of franked dividends, which for retirees in pension phase present significantly more value than unfranked income or capital gains. Australian equity income strategies, when structured and executed appropriately, can provide strong total returns over time through attractive dividend yields and without sacrificing capital growth. The Merlon Australian Share Income Fund was launched in 2005 and led the innovation of contemporary equity income funds. It was the first product of its kind, aiming to provide above-market income with franking, grow capital over time with lower risk than the market. The non-benchmark portfolio has a high active share, blending well with both passive and direct share portfolios which are typically overweight large cap stocks. The Fund delivers above market income, the majority from franked dividends, paid monthly and has demonstrated strong risk-adjusted returns over multiple time periods. The strategy features a risk reduction overlay to insulate the Fund during periods of drawdown whilst retaining 100% of the franked dividend income generated from the underlying portfolio. Funds operated by this manager: Merlon Australian Share Income Fund, Merlon Concentrated Australian Share Fund Disclaimer |
The Great Reversals (pdf format)
10 Sep 2024 - Emerging Middle Class Megatrend
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Emerging Middle Class Megatrend Insync Fund Managers August 2024 The era of blindly betting on Western brands to tap into China's burgeoning consumer market is over. Once considered no-brainers, global titans like L'Oreal, Nike and Starbucks are finding their footing increasingly precarious. Despite the allure of its growing middle class the dynamics at play are more nuanced than ever. New generation of Chinese consumers are flexing their economic muscle. No longer in favour of the imported brands that once dominated their preferences they have rotated towards domestic brands that speak to their cultural identity and nationalist pride. LVMH, a beacon of luxury with its Sephora chain, has had to slim down operations in China--a stark indicator of this shifting landscape. Domestic players, such as Anta Sports, are not only catching up but surpassing Western rivals like Adidas in market share. Meanwhile, coffee giant Starbucks, a symbol of Western lifestyle, is ceding ground to local competitors like Luckin Coffee, which captivates the market with aggressive pricing and expansive growth recently surpassing 20,000 stores. The same story echoes across most industries: global brands are no longer the default choice for Chinese consumers. Companies must now navigate a complex web of local preferences, cultural trends, and rising nationalism inside China. Simply assuming that Chinese spending power will translate to Western profits is dangerous. When investing in such global brands, understanding how these nuanced drivers impact stock values and acknowledging that what worked yesterday may not hold sway tomorrow, is now crucial. Founded only in 2017, Luckin Coffee quickly challenged Starbucks in China with lower prices, discounts, and drinks tailored to Chinese tastes, like the coconut latte and collaborations with local brands. By aligning with the "Guochao" trend, Luckin appeals to younger, cost-conscious consumers and benefits from the preference for local brands. With 20,000 stores versus Starbucks' 7,000+, Luckin dominates China's coffee market. Meanwhile, Starbucks reported an 8% revenue decline in its most recent results. Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund Disclaimer |
9 Sep 2024 - New Funds on Fundmonitors.com
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New Funds on FundMonitors.com |
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Below are some of the funds we've recently added to our database. Follow the links to view each fund's profile, where you'll have access to their offer documents, monthly reports, historical returns, performance analytics, rankings, research, platform availability, and news & insights. |
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| Resolution Capital Global Property Securities Fund - Series II | ||||||||||||||||||||||
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| Resolution Capital Core Plus Property Securities Fund - Series II | ||||||||||||||||||||||
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| Resolution Capital Global Listed Infrastructure Fund | ||||||||||||||||||||||
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| Blackwattle Small Cap Long-Short Quality Fund | ||||||||||||||||||||||
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| Aikya Emerging Markets Opportunities Fund | ||||||||||||||||||||||
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6 Sep 2024 - August Reporting Season - Week Three Update
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August Reporting Season - Week Three Update Tyndall Asset Management August 2024 The third week of reporting season is always busy, with some 110 companies reporting that represent $716bn of market capitalisation. A similar number of companies are expected to report over the final week. The 2024 earning season has been marked by a mix of optimism and caution, with distortions caused by the COVID-19 pandemic largely now dissipated. However, this normalisation has not been without its challenges, particularly as earnings expectations have generally trended downward. Some of the trends emerging include:
Earnings Performance and Market ReactionsReporting season has so far revealed a mixed performance across the ASX 300, with companies reporting a balanced mix of beats and misses. In aggregate across those ASX 300 companies that have reported (61%), profit before tax beats sit at 25% vs misses at 23%. It is worth reflecting that the final week tends to be more skewed to the downside (48% of results missed by >5% over the past two reporting seasons). Market reactions have been varied, with share prices responding accordingly to the earnings outcomes.
Sector Highlights
Where to next?The final two weeks of reporting season are always brutal, with the sheer number of companies reporting making it difficult to separate the noise from the underlying fundamentals. It is important to determine quickly whether the share price reaction is reflecting the long term, short term or simply how the market is positioned in the stock. As long-term fundamental value investors, excessive moves during earnings season typically bring opportunities. As Benjamin Graham, the father of value investing opined: "In the short run, the market is a voting machine but in the long run, it is a weighing machine." Fear and greed are some of the most powerful long-term alpha generators and thus it is important to have a patient and disciplined process that can find opportunities amongst the dislocations. Author: Brad Potter, Head of Australian Equities Funds operated by this manager: Tyndall Australian Share Concentrated Fund, Tyndall Australian Share Income Fund, Tyndall Australian Share Wholesale Fund |
5 Sep 2024 - Can utilities solve the renewable energy storage problem?
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Can utilities solve the renewable energy storage problem? Janus Henderson Investors August 2024 The rapid growth of renewable energy sources like wind and solar power has brought a critical challenge to the forefront: how to effectively store and distribute this intermittent energy. As utilities grapple with increasing load growth and work toward net-zero decarbonization goals, they face a pressing question: How much renewable energy can they integrate before hitting practical limitations? The renewable integration ceilingBased on our discussions with utilities in various locations, the upper limit for renewable penetration in their energy mix without significant storage solutions or major interconnection improvements is somewhere between 30%-40%. Beyond this threshold, the intermittency of wind and solar power begins to pose challenges. While plans vary, many utilities aim for 70%-80% renewables by the early 2030s. While renewables penetration is already high in certain areas, like Texas and California, states in the mid-Atlantic, Northeast, and Pacific Northwest face bigger hurdles in achieving these goals due to less intense wind and solar power generation given weather conditions in those regions. The elusive long-duration storage solutionFor over a decade, utility-scale, long-duration battery storage has been the holy grail for increasing renewable energy penetration. Ideally, this solution would store power for more than 24 hours, and preferably up to a week. However, despite ongoing research, an economically viable option that works at the scale needed to power entire cities or regions has yet to emerge. Current storage solutions often work well on a small scale but struggle when scaled up. The physics may not work, or costs become prohibitive. While breakthroughs in technologies like solid-state batteries, sodium batteries, or hydrogen solutions occasionally make headlines, they often fall short of being able to power a major city during extended outages or prolonged periods of low renewable generation. The need for better storage is twofold: to prepare for multi-day renewable energy shortfalls and to reduce waste. In some regions, like California, excess renewable energy generated during peak times goes unused due to lack of storage capacity. Short-term solutions and alternative technologiesDespite these challenges, utilities are investing heavily in energy storage. The global market nearly tripled last year and is on track to surpass 100 gigawatt-hours of capacity for the first time in 2024 (Exhibit 1). Large regulated utilities like NextEra, Xcel, and AES are leading the charge in building out grid-scale storage. Exhibit 1: Annual global storage installations outlook by region
Current models typically use lithium-ion batteries that can hold only two to four hours of power. These short-duration solutions help manage daily fluctuations - storing electricity during peak renewable generation periods and discharging it back to the grid when electricity demand is high - but don't address longer-term power mismatches or resilience planning. As utilities recognize that lithium-ion batteries probably aren't the ultimate solution for their long-duration, large-scale storage needs, alternative technologies are gaining attention. Flow batteries and sodium ion batteries, for example, use cheap, abundant materials, potentially solving the sourcing and availability issues associated with lithium. While their weight and size make them impractical for electric vehicles, they could work well for stationary storage. Hydrogen is another frequently discussed option, though its promise has remained "10 years out" for some time. The main barriers to widespread adoption of these technologies are cost and efficiency. For instance, green hydrogen production needs consistent, high-uptime operation to be economically viable, which is challenging when relying on intermittent renewable energy sources. Implications and potential scenariosThe lack of a viable long-duration energy storage solution has far-reaching implications: 1. Utilities may need to delay fossil fuel plant retirements and rely more heavily on natural gas as a short-term solution, potentially building new gas-fired facilities. While this could slow progress toward decarbonization goals, it would help ensure grid reliability as electricity demands from AI data center growth and the move to a more electrified economy increase over the next decade. If regulated public utilities prioritize achieving net-zero goals over building new gas-fired facilities, power could potentially be generated by the private sector. Alternatively, electricity prices could increase, potentially slowing data center growth and bringing electricity demand back to a more manageable level. 2. The expansion of wind and solar installations may face limitations as grid operators struggle to balance intermittent supply and demand. This could potentially slow the pace of renewable energy adoption in some regions. Furthermore, installations could slow in regions with an abundance of renewable energy and negative power pricing. Adding more renewables could compound the oversaturation problem in these regions without favorable economics for developers. 3. Data centers, which need constant electricity and have Big Tech clients with ambitious sustainability goals, may explore alternative options like small-scale nuclear reactors to meet their energy needs while maintaining sustainability commitments. 4. Grid stability becomes more challenging without adequate storage capacity, potentially leading to increased volatility in power markets and reliability issues during extended periods of low renewable generation. Incentives could stoke further innovationThe road ahead for renewable energy storage remains uncertain, but incentives for developing and implementing large-scale, long-duration storage solutions are likely to grow. As utilities and tech companies push for solutions, and as the frequency and duration of power outages potentially increase with greater incidence of extreme weather, innovation in this space will be crucial. For investors, the energy storage market presents a complex landscape with very few pureplay public equity investment opportunities. Many companies are still in the early stages of development and face profitability challenges, particularly cash-intensive businesses in a high interest rate environment. The industry can also be volatile and dependent on government support, making it potentially better suited for diversified portfolios. We expect larger utility companies leading in renewable development such as NextEra, AES, and Iberdrola to drive long-term progress in energy storage. While regulated, they are at the forefront of current storage buildouts and are investing in next-generation storage technologies like hydrogen. We believe utilities can eventually solve the renewable energy storage problem. For now, however, despite their progress, the holy grail of energy storage remains just out of reach. Author: Noah Barrett, CFA |
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Funds operated by this manager: Janus Henderson Australian Fixed Interest Fund, Janus Henderson Australian Fixed Interest Fund - Institutional, Janus Henderson Cash Fund - Institutional, Janus Henderson Conservative Fixed Interest Fund, Janus Henderson Conservative Fixed Interest Fund - Institutional, Janus Henderson Diversified Credit Fund, Janus Henderson Global Equity Income Fund, Janus Henderson Global Multi-Strategy Fund, Janus Henderson Global Natural Resources Fund, Janus Henderson Tactical Income Fund IMPORTANT INFORMATION Energy industries can be significantly affected by fluctuations in energy prices and supply and demand of fuels, conservation, the success of exploration projects, and tax and other government regulations. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned. Volatility measures risk using the dispersion of returns for a given investment. This information is issued by Janus Henderson Investors (Australia) Institutional Funds Management Limited (AFSL 444266, ABN 16 165 119 531). The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Whilst Janus Henderson Investors (Australia) Institutional Funds Management Limited believe that the information is correct at the date of this document, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson Investors (Australia) Institutional Funds Management Limited to any end users for any action taken on the basis of this information. All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson Investors (Australia) Institutional Funds Management Limited is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. |
Source: BloombergNEF, 1H 2024 Energy Storage Market Outlook, April 25, 2024. Note: RoW = Rest of the World; EMEA = Europe, Middle East, and Africa; AMER = US, Canada, Latin America; APAC = Asia-Pacific; Buffer = headroom not explicitly allocated to an application.
4 Sep 2024 - RBA minutes - inside a meeting of two-handed economists
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RBA minutes - inside a meeting of two-handed economists Pendal August 2024 |
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IF anyone complains about RBA transparency, they are not paying attention. The minutes from the central bank's early August meeting were released today, though I am not sure minutes is the correct word - at 3,667 words, transcript might be a better term. Together, with the post-meeting press conference, the RBA is putting its best foot forward in communicating with the public, as encouraged by the RBA review. There was so much to say but so little confidence in anything. Even the new Deputy Governor Andrew Hauser chose a recent speech to warn of false prophets and said we should have little confidence in any forecasts. In the minutes we were treated to such gems as:
However, the one thing the RBA was keen to say is that if the Board was to do anything near term it is hiking - not cutting. It believes there is less spare capacity in the economy than previously thought. If that does not improve, then inflation will be too slow to fall. Very little spare capacity when GDP is barely growing? Sounds like the Board still believes we have a supply problem. Otherwise, its message could be summarised as "we need a recession to beat inflation", which is a variation of Paul Keating's "recession we had to have". I am not sure it would want that headline. We disagree with the RBA's current concerns, finding more agreement with the ex-RBA chief economist - now Westpac Chief economist - Luci Ellis. She describes the RBA as "skating to where the puck used to be" due to the fact that the RBA is focused on where the labour market was, not is. Recent data showing increasing participation and supply, falling hours worked per person, and improving real incomes means the puck has moved. In the months ahead, the RBA should be increasingly comfortable with labour market dynamics helping lower inflation. This should change its narrative and see it follow other central banks by cutting rates early next year. Remember, the RBA stated in February 2022 that "while inflation has picked up, it is too early to conclude it is sustainably within the target range" and that "there are uncertainties about how persistent the pick-up in inflation will be as supply side problems are resolved". In May 2022, it hiked. OutlookMarkets for now are largely ignoring the RBA anyway. Three-year bonds remain near 3.5% and ten-year bonds finally seem to be holding just below 4%. At these levels, bond markets are no longer super cheap but, at the risk of becoming a two-handed fund manager, they are also not expensive. It is important to remember the cycle has turned and, when that happens, yields will trend lower for an extended period. Author: Tim Hext |
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Funds operated by this manager: Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Multi-Asset Target Return Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Pendal Sustainable Australian Share Fund, Regnan Credit Impact Trust Fund, Regnan Global Equity Impact Solutions Fund - Class R |
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This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com |
3 Sep 2024 - What not being born and not dying is doing to investments
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What not being born and not dying is doing to investments Insync Fund Managers August 2024 Are we experiencing a permanent change to a major economic driver that has underpinned an investor assumption for the past 100 years? That assumption being that ever more people would be working decade to decade? Most developed nations since the 2000's have been experiencing dramatic shifts in the makeup of their populations, spelling big challenges for societies and also for investors. It used to be commonplace that more younger people entered the workforce than left it, had two or more kids and did not live too long after retiring. This meant there was always a growing labour supply and growing tax revenues, and aged health and social care was a controllable tax-funded expense. Not anymore. Birth rates have been falling for decades. A 2.1 birth rate replenishes a population, anything less means decline. Australia's current 1.6 birth rate is down from 2 only 15 years ago. KPMG analysed Australian Bureau of Statistics (ABS) data and found 2023 had the lowest birth rate since 2006 and it is falling by 4.6% per year. Even though a drop of this magnitude occurred in the 1970s, the longer-term trend is one of decline. This finding is echoed across the globe in Korea, Japan, Ukraine, Germany, UK, USA, Russia, China, France, Italy, Scandinavia and so on. Back in 2011, the world experienced its 'peak child' maximum population count with most of these residing in poor nations. Many towns and regional cities globally are in decline. Reducing poverty, women being able to choose whether or not to have children, and being empowered economically, have impacted birth rates. India and Indonesia are as we used to be, but they're rapidly approaching the same situation. Declining birth rates however are just half the issue. The other half is that globally, according to the United Nations' UN75 project, the number of people aged 65 plus outnumber the number of children under five. They are the fastest growing age group and by 2050, will outnumber those aged 15-24. We may reach a point where older people not working will outnumber people who are. This is because the older are living much longer and fewer children are transitioning to adulthood. Today the life expectancy in Australia for men is around 81 and for women around 85. This compares to around 74 for men and 80 for women 30 or so years ago. Medical advances and technology mean that we are set to live older still. Stanford University research suggests that it won't be unusual for babies born in America in 2050 to live to 100. Other studies suggest that humans might one day live to 150. In a nutshell - we are not procreating like we used to, and we are not dying like we used to either. This means fewer people building economic growth, driving demand, consuming goods and services and - paying taxes. Older people consume less in almost everything except healthcare and rely on government support far more, while paying very little tax. To some extent a country can offset and delay the worst of demographic problems via strong immigration (Australia, Canada and the USA are examples). Over 8 years ago the German government forecast a need for a million immigrants a year for 20 years just to replace its current workforce. When they brought in the first million, riots and a government collapse was only narrowly averted. In an ever-divisive world, immigration is reliant on popular support and in any event, it is really just robbing Peter to pay Paul. What does this all have to do with investment? I'm glad you asked. Firstly, products, services and even entire industries that are dominant today can see their markets dry up or radically change in only a few years. Understanding how purchasing habits are shifting in the dominant working age population of GenZers is key. Their values, drivers and preferences are different to those that today's 60-year-olds hold, and likely held, back in their late 20's to early 30's. If you're an investor in companies reliant on old brands, products or services delivered in traditional ways you will need to be extra vigilant. Kraft is an example of a company that had not factored in the impact of demographic change. Its failure to properly invest in R&D, while pumping short term profits, spelt disaster in long term earnings as its decades old food brands no longer appealed to younger people. But secondly, there are positives for those who look well ahead and align their portfolios to what the economic ripple effect caused by demographic change is having. For example, the megatrend known as 'the Silver Economy' made up of companies specialising in products and services for older people, especially retirees. The most obvious of these are healthcare, leisure, and pharmaceutical, but there are more obscure companies behind the scenes in such megatrends that also have the capacity to deliver handsome rewards. The Silver Economy is only one megatrend benefiting from tectonic demographic shifts. Others include Pet Humanisation, Trading-Down and Emerging Middle Incomes. The challenge for investors is how to identify, then best ride the positive demographic driven megatrends already underway and reducing or even exiting those investments on the wrong side of demographic change. The rewards in doing both are substantial. Author: Grant Pearson, Head of Strategy and Distribution Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund Disclaimer |
2 Sep 2024 - Stock Story: Stryker
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Stock Story: Stryker Magellan Asset Management August 2024 |
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Stryker Corporation: transforming patient care for over 150 million patients annually. Innovation leadership is a key hallmark of a high-quality business. When we think about major innovation trends globally, the most prominent headlines usually spotlight the technology sector. Recent excitement about artificial intelligence and its many applications is a prime example. However, less visible yet equally transformative is the pace of innovation in a sector often considered more constant: healthcare. The pace of healthcare innovations has accelerated dramatically in recent decades, leading to significant advancements in healthcare services and improving quality of life. For instance, the world witnessed the rapid development of the mRNA vaccine platform, which played a crucial role in combating the covid-19 pandemic. Additionally, new GLP-1 agonists are showing potential in addressing the growing global obesity epidemic. The healthcare subsector of medical devices stands out as a vital contributor to enhanced medical treatments. This is due primarily to the adoption of new and innovative medical technologies by physicians and health systems worldwide. These technologies have been clinically proven to deliver superior patient outcomes, improved surgical techniques, and operating room efficiencies. A standout leader in the medical devices subsector is Stryker Corporation. With a diverse product portfolio spanning orthopaedics, medical and surgical equipment, and neurotechnology, Stryker's products are available in over 75 countries, affecting more than 150 million patients annually. If you have ever been treated in an operating room in a hospital, chances are you encountered one or more of Stryker's products.
Stryker's journey began in Michigan, USA, in 1941, founded by a prominent orthopaedic surgeon and medical device inventor Dr Homer Stryker - which is fitting given the company has been at the forefront of medical innovation in the orthopaedic surgical category over the past decade. Beyond continuous enhancements in knee and hip implant designs, such as cementless designs that better promote bone growth, Stryker revolutionised the field in 2017 with its Mako Robotic-Arm, assisting surgeons in performing knee and hip replacements with unprecedented precision. Clinical studies highlight that Mako Robotic procedures result in meaningfully higher patient satisfaction rates, with lower post-operative pain, faster recovery times, more accurate bone resections and implant placement and reduced soft tissue damage. This has accelerated surgeon adoption, with over 60% of knee and 30% of hip implants sold by Stryker in the US now implanted using a Mako Robot. Despite significant investments by competitors in R&D, they have struggled to dethrone Stryker's leadership. This underscores Stryker's R&D strength, driven by its unique 'bottom-up' capital allocation model and the 'innovation flywheel' effect stemming from long-standing relationships with leading surgeons and teaching hospitals. Stryker holds over 5,000 patents, 400 of which are in its digital robotics platform - a ten-fold increase in the past decade. Plans are underway to extend the Mako Robot to new surgical indications, including upper extremities (shoulder) and spine. Stryker's innovation is not limited to orthopaedics. The company is advancing surgical planning and navigational software for cranial and spine procedures with its Q Guidance System and improving surgical visualisation and fluorescence imaging for minimally invasive surgeries with its 1788 platform. The growing installed base of Stryker's systems, alongside the lack of superior alternatives from competitors, underscores the impressive nature of its advancements. Importantly, impactful innovation can lead to pricing power through a combination of patient/physician preferences and patent protection, and higher switching costs due to the invasive nature of surgical products and the growing clinical evidence of improved patient outcomes. This gives us confidence in Stryker's above-peer growth outlook, which is particularly bolstered by its ability to benefit three key stakeholders in health systems worldwide where expenditure continues to reach new heights: patients, surgeons, and hospitals. By Wilson Nghe, Investment Analyst |
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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, Magellan Core ESG 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. |
The three factors driving stock returns (pdf format)
