NEWS
4 May 2023 - Performance Report: Digital Asset Fund (Digital Opportunities Class)
[Current Manager Report if available]
4 May 2023 - The twilight of China's population
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The twilight of China's population Redwheel (Channel Capital) April 2023 China's population declined last year, the first annual contraction since 1961, amid a Covid-induced sharp decrease in new births and long-term structural factors. China has followed a similar trajectory to many developing countries as having an aging population is a common demographic problem in developed countries, where birthrates have steadily declined with higher levels of income, healthcare and education. Countries such as Japan and Germany have had decades to adjust as their populations have aged gradually. China, on the other hand, has begun the aging process at an earlier stage of development and at a more accelerated pace than most countries have experienced. In 2022, official statistics revealed a decline in China's population with a fall of 850,000 from the previous year. However, for a country of more than 1.4 billion people, the difference is relatively small but shows the general trend. The central government has acknowledged the looming demographic problem with a policy package to boost births in August 2022, pledging to improve public services such as healthcare and childcare as well as to offer priorities on public housing to bigger families. Local governments have since followed suit, rolling out home purchase subsidies or allowances for families with multiple children. Despite China's population decline often presented as a crisis, we see a number of opportunities as we continue to believe China's economic growth will be driven by labour quality rather than labour quantity. We expect China's GDP to potentially grow around 5.5% to 6% in the medium term, within which service sectors should become more prominent.
Source: CEIC, Jefferies as at 31 January 2023. The information shown above is for illustrative purposes. Given the forecasted population contraction, many are concerned that the demographic crisis will turn into strong growth headwinds. In our view, the shrinking population may influence total demand, but the negative impact may not be as large or damaging as the headlines suggest. We examine the economic impact of this demographic trend on China's manufacturing and consumption.
Source: NBS, United Nations, Citi Research, as at 31 January 2023. The information shown above is for illustrative purposes. Manufacturing will see little impact
Source: CNBS/H, United Nations, Haver, as at 31 January 2023. Past performance is not a guide to future results. The information shown above is for illustrative purposes. Most developed countries actively increase immigration to mitigate population collapse. However, this is less applicable in China: from 1990 to 2020, China has seen total immigration of merely 1 million. This lack of immigration is due to both language barriers and the country's restrictive immigration policy. While we do not expect this to reverse in the foreseeable future, we do think that raising the retirement age could enable more workers to stay in the labour force for longer. China currently has the lowest retirement age among the OECD countries. China requires most men to retire at 60, white-collar women at 55 and blue-collar women at 50. That is well below the retirement age of 65 in Singapore, 67 in Germany, and 70 in Japan. The Chinese government has pledged to gradually increase the retirement age by 2025. We believe this could offset some of the impacts from the declining labor force.
Source: United Nations, as at 31 January 2023. The information shown above is for illustrative purposes. Labour aside, productivity gain should continue to be the key contributing factor for growth. China's manufacturing sector has seen a strong productivity improvement in the past three decades. Since joining the World Trade Organisation (WTO), China has established massive production scale and expanded into several diverse industries. The economies of scale and comparatively integrated industrial chain have created impeccable production efficiency and cost effectiveness, which offers a significant advantage to other nations in comparison. Looking at the labour-intensive textile industry as an example, in addition to mass production, China's cost advantage in the textile industry stems from the fact that China leads the upstream production of polyester. China has about 80% of the world's polyester production capacity, which provides unparalleled cost advantages to local fabric manufacturers and subsequently the garment producers. China, therefore, has remained a production powerhouse in apparel, which might seem to be among the easiest to shift to lower-cost countries. However, China remains at the forefront of FDI inflows into neighbouring regions such as Vietnam as China aims to move up the value chain and give priority to projects which could generate high value products and operate using cutting edge technologies.
Source: National Bureau of Statistics, as at 31 January 2023. The information shown above is for illustrative purposes. Past performance is not a guide to future results. Going forward, we expect China's productivity to gradually improve. Its productivity gain could come from rising investment in human capital, further urbanisation and technology-driven efficiency improvement.
Source: United Nations, National Bureau of Statistics as at 31 January 2023. The information shown above is for illustrative purposes. Urban migration has been a major source of cheap labor in China. As people move from villages to cities, productivity tends to increase significantly due to the productivity differentials between agriculture and industry. Additionally, there is a change in consumption spending growth as consumers look to increase spending on property and durable goods, such as cars and appliances. China's urbanisation rate rose from 36% in 2000 to 65% in 2021, which remains low compared to developed countries such as Japan (92%) and the United States (83%). While facing higher costs, China's improved labour productivity should allow it to compete with quality in the next wave of industrial prosperity.
Source: National Bureau of Statistics as at 31 January 2023. The information shown above is for illustrative purposes.
Source: CEIC. The information shown above is for illustrative purposes. Forecasts and estimates are based upon subjective assumptions. Finally, new technology, such as automation and artificial intelligence, could reduce the demand for labour and extend the working lives of the labour force in general while maintaining output growth. China has been the world's largest industrial robot market since 2013. With the aid of government policy to push towards automation across industries, we expect China to keep leading in robot adoption and production in the next decade. More importantly, similar to Korea, China is making great strides in high-tech industries in which it still accounts for a relatively small share of global markets, such as renewables, machines, tools and pharmaceuticals. As a result of these factors, we believe China's productivity improvement will continue to outweigh the lack of population growth when it comes to manufacturing. We, therefore, see the impact from labour on growth to be minimal. Unlike manufacturing, consumption should see structural changes
Source: National Bureau of Statistics, CICC, as at 31 January 2023. Past performance is not a guide to future results. The information shown above is for illustrative purposes. Conversely, businesses in areas such as child-care and higher education will face a smaller market cohort should the number of newborns fail to stabilise. These sectors are at a natural disadvantage. We think that population and demographic changes will bring both rising and receding prospects to China's general consumption. We are selectively constructive in the service sector, where both the policy and market set-up are much more favourable. While the demographic shift is often presented as a crisis for China, we see immense opportunities in these challenges. We think that China's economic growth will be driven by labour quality rather than labour quantity, which will partly offset the impact of a declining population. We expect China's GDP to grow around 5.5% to 6% in the medium term, within which service sectors should become more prominent. Against this backdrop, we are well positioned for opportunities in these growth areas: new technologies, smart manufacturing, healthcare, insurance, and consumer services. |
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Funds operated by this manager: CC Redwheel Global Emerging Markets Fund, CC Redwheel China Equity Fund Key information: No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Past performance is not a guide to future results. The prices of investments and income from them may fall as well as rise and an investor's investment is subject to potential loss, in whole or in part. Forecasts and estimates are based upon subjective assumptions about circumstances and events that may not yet have taken place and may never do so. The statements and opinions expressed in this article are those of the author as of the date of publication, and do not necessarily represent the view of Redwheel. This article does not constitute investment advice and the information shown is for illustrative purposes only. |
3 May 2023 - Performance Report: PURE Resources Fund
[Current Manager Report if available]
3 May 2023 - ESG in 10 Podcast: Artificial Intelligence and Big Tech
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ESG in 10 Podcast: Artificial Intelligence and Big Tech Alphinity Investment Management April 2023 Episode 4- Artificial Intelligence and Big Tech - What does this mean for responsible investors? Charlotte O' Meara is joined by Mary Manning and Jessica Cairns, Alphinity Investment Management. This information is for advisers & wholesale investors only. |
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Funds operated by this manager: Alphinity Australian Share Fund, Alphinity Concentrated Australian Share Fund, Alphinity Global Equity Fund, Alphinity Sustainable Share Fund Disclaimer |
2 May 2023 - Performance Report: Equitable Investors Dragonfly Fund
[Current Manager Report if available]
2 May 2023 - Stock Story: QBE Insurance
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Stock Story: QBE Insurance Airlie Funds Management April 2023 |
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Quality management and strong cycle leading business turnaround. QBE is a global commercial insurance provider. The stock is a position we first added to the portfolio in September 2022. This is a company that for a long period had failed to pass almost every step in our process - business quality, financial strength, management quality and valuation. The impetus to revisit the stock was twofold - we liked the medium-term outlook for insurance pricing and the company announced the appointment of a new CEO with a fantastic reputation, Andrew Horton. Insurance pricing is cyclical and alternates between periods of soft and hard market conditions. Several years of above-trend catastrophe events (CATs), as well as covid-related business interruption claims and the return of broad-based inflation, has seen the commercial insurance market tighten considerably. The net has been a prolonged period of premium rate growth not seen since the early 2000s. The cycle looks poised to continue (albeit at a lower rate of growth) as insurers digest and push through the impact of reinsurance rate increases, and continue to price for an inflationary environment. (refer to the premium rate change chart over time at the end). QBE's calendar year 2022 result arguably represented the first reporting period in which investors could plainly see the improved operating performance of the business. Gross written premiums (GWP) grew 13%, inclusive of an average group-wide renewal rate increase of 8%. The company reported GWP growth of 13% constant currency and an underlying combined operating ratio (COR) of 93.7%. Pleasingly, QBE's North American division reported a COR of 98.9%, the division's first profitable result since 2018. The result in North America came despite a weaker-than-average year in the crop insurance business and is consistent with management's focus on portfolio remediation in property programs and growing the retail business to drive scale benefits. At a group level, cost discipline and operating leverage (in a strong rate environment) saw a material improvement in the company's expense ratio, from 13.3% to 12.4%. CATs came in line with November guidance, albeit ~$100m (10%) higher than the original FY22 allowance. QBE reported a 4.1% running yield for the fixed income portfolio to end the period, which is clearly a material tailwind for FY23 (and will support QBE's expectations of a mid-teen ROE). QBE's regulatory capital ratio increased from 1.75x to 1.79x, with debt to total capital reducing from 24.1% to 23.4%, the lowest level in over a decade. Source: company filings
Author: Joe Wright, Senior Investment Analyst Funds operated by this manager: Important Information: Units in the fund(s) referred to herein are issued by Magellan Asset Management Limited (ABN 31 120 593 946, AFS Licence No. 304 301) trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks.. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie. |
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1 May 2023 - Performance Report: Insync Global Quality Equity Fund
[Current Manager Report if available]
1 May 2023 - 10k Words | April 2023
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10k Words Equitable Investors April 2023 Funds continue to flow into equities despite recent volatility and recession fears, with Barclays noting fund flows lag performance. Performance is highly correlated with money supply, notes GLJ Research, and central bank liquidity may actually have been increasing lately according to Citi Research. The "Buy the Dip" mantra helps, as Bloomberg charts this strategy's recent success. Despite equity markets holding up, capital raising remains suppressed relative to dealogic's 2020 and 2021 figures. WSJ highlighted aerospace and defence technology as an area where there does appear to be strong capital flows. US banks, however, have seen deposit outflows, as charted here by Reuters. Margins have blown out on ASX-listed debt and hybrids, as per Bell Potter charts, which are largely issued by banks and financials. Bond market volatility is at historically high levels as seen from Bespoke and FT charts. Back in equities, the concentration of major indices stands out and Equitable Investors has pulled together top ten stats. The S&P 500 would have been down in March without "big tech", eToro highlights. US households supporting flows to equities despite recession risk 
Source: Barclays Research Money Supply (M2) has high correlation with S&P 500
Source: GLJ Research Global central bank liquidity has been increasing according to Citi Research 
Source: Citi Research, Bloomberg 2023 shaping up as the second best year for dip-buying strategy 
Source: Bloomberg Global equity capital raisings by quarter ($US)
Source: WSJ, dealogic Australasia equity capital raisings by quarter ($US)
Source: WSJ, dealogic US VC deal activity in aerospace and defence technology 
Source: WSJ, PitchBook US bank deposits 
Source: Reuters Trading Margins on ASX Listed Debt and Hybrid Sectors (27 Mar) 
Source: Bell Potter Research US Two-Year Bond Yield - Four Week Average Daily Move 
Source: Bespoke Investment Group ICE BofAML MOVE Index (US bond market implied volatility) 
Source: FT, Refinitiv Top 10 Nasdaq 100 components = 55% weighting Source: Equitable Investors, SlickCharts Top 10 S&P 500 components = 27% weighting
Source: Equitable Investors, SlickCharts Top 10 iShares Core S&P/ASX 200 ETF components = 46% weighting
Source: Equitable Investors, Iress S&P 500 performance without "big tech" 
Source: eToro, Bloomberg April Edition Funds operated by this manager: Equitable Investors Dragonfly Fund Disclaimer Nothing in this blog constitutes investment advice - or advice in any other field. Neither the information, commentary or any opinion contained in this blog constitutes a solicitation or offer by Equitable Investors Pty Ltd (Equitable Investors) or its affiliates to buy or sell any securities or other financial instruments. Nor shall any such security be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. The content of this blog should not be relied upon in making investment decisions. Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information. This blog is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this blog does not constitute a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Although this material is based upon information that Equitable Investors considers reliable and endeavours to keep current, Equitable Investors does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this blog may change as subsequent conditions vary. Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components. Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog |
28 Apr 2023 - Hedge Clippings | 28 April 2023
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Hedge Clippings | 28 April 2023 |
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Economic Cross Winds Following last week's release of the Review of the Reserve Bank, which targeted the RBA's culture, management and performance, the focus now returns to next week's board meeting, and the potential for an extension of the policy pause announced in March. Supporters of this view - by no means unanimous - were encouraged by this week's inflation figure which saw annual inflation to the end of March fall to 7.0%, down from December's 30 year peak of 7.8%. Others saw it differently, particularly those who pointed out that inflation at 7% is still at least 4% above the top of the RBA's target range of 2-3%, and are wary of the inflationary effects of wages policy, plus any inflationary impact from the Government's first budget, due on Tuesday week. Thereafter it is going to be more difficult for Chalmers to blame Scomo (a.k.a. Minister for Everything) and Josh Frydenburg for Australia's inflationary and economic woes, when the root cause of the current situation was global or external. Our call is for a continuation of the pause, even if only for a month until the budget is out of the way and the picture is clearer. However, barring a recession, expectations are for inflation to remain elevated for longer than the RBA expects, so it is likely to be well into 2024 or beyond before Australia's inflation rate starts with a "2", by which time, if Jim Chalmers has anything to do with it, Philip Lowe will be long gone. Turning to the US, there is also a Fed meeting scheduled for next week, with the Federal Reserve chairman Jerome Powell facing further economic cross winds as core inflation picked up in the March quarter, while growth was just 1.1%, well under the median forecast of 1.9%. Higher inflation, coupled with lower growth, is not a positive formula, particularly while the Fed is also grappling with falling confidence in the banking system as San Francisco based First Republic Bank suffered withdrawals of 40% of its deposits in the first three months of the year. Coming on the back of the collapse of US banks Silicon Valley and Signature, and the Swiss National Bank's emergency liquidity of US $120 billion to support the UBS absorption of Credit Suisse the risk of contagion in the US and the global banking system is heightened. This article from the Economist Intelligence Unit - although a few weeks old - argues that financial contagion is unlikely. However, if consumers or depositors' confidence is shaken by the chance of their loss of capital, this could change very rapidly. |
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News & Insights Australian Secure Capital Fund - Market Update March | Australian Secure Capital Fund Investment Perspectives: Banks, balance sheets and bailouts | Quay Global Investors March 2023 Performance News Bennelong Concentrated Australian Equities Fund Emit Capital Climate Finance Equity Fund Insync Global Quality Equity Fund Insync Global Capital Aware Fund |
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28 Apr 2023 - Performance Report: Emit Capital Climate Finance Equity Fund
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