Market volatility creates opportunities

L1 Capital

August 2022

Funds operated by this manager:

 L1 Capital Long Short Fund (Monthly Class), L1 Capital International Fund, L1 Capital Long Short Fund (Daily Class), L1 Long Short Fund Limited (ASX: LSF), L1 Capital Catalyst Fund, L1 Capital Global Opportunities Fund

4D podcast: interest rates, inflation and infrastructure

4D Infrastructure

August 2022

Funds operated by this manager:

The content contained in this article represents the opinions of the authors. The authors 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 authors to express their personal views on investing and for the entertainment of the reader.

Challenges and opportunities for global equities: Insights from our recent US research trip

Bell Asset Management

July 2022

With global equity valuations coming under pressure due to surging inflation, rising interest rates and elevated commodity prices, the outlook for investors continues to provide uncertainty.  On a recent research visit to the US, Portfolio Manager, Adrian Martuccio sat down with various portfolio company management teams to discuss their outlook and business confidence, as well as the impact of inflation on consumer demand and supply.

We share a summary of his views and unpack some of the ideas and themes that were addressed. Despite the ongoing list of negatives that investors are facing, there are still a number of positive items that support 'quality' when it comes to taking a long term view on global equities.

US insights - what you need to know

As we look at the state of the US economy, global company management teams exhibited similar viewpoints about the high likelihood of a recession with the vast majority being more sanguine that a slowdown/recession will ease supply chain bottlenecks. Many businesses believe that supply chain issues are still widespread, primarily labour driven with smaller companies, though these backlogs will likely decline by the end of the year as inventory gets replenished.

As recession uncertainty continues, sectors such as manufacturing and selective retail are seeing elevated inventory levels becoming the heart of the problem in their businesses, partly due to growing backlogs, long transit times and over-ordering.

Concerns are also mounting about the impact of escalating inflation levels, which has seen the US reach a 40 year high inflation level of 9.1% in June 2022. According to Adrian Martuccio, employee shortages are rife across the nation and inflation continues to be well anchored compared to last year. While investors adjust their expectations of the inflationary pressures they face, we believe that US household and bank balance sheets remain healthy.

One thing is certain, a combination of soaring inflation, slowing growth and high company margin expectations is taking place, as the hiking of interest rates on equity valuations evolves into investor worries. The consensus is that company forecasts need to come down and margins across the board are far too high. Management teams believe that stock prices have factored this in, but we believe it will become difficult for companies to rally convincingly in the face of downgrades - with investors now questioning whether company earnings will moderate as both demand and margins come under pressure.

Growth sectors under pressure

Software and biotech industries, once lucrative and heavily weighted growth sectors, have seen valuations come under significant pressure in the listed space and private companies are now experiencing funding drying up. We believe valuations in the private space will further reduce once companies in these sectors become desperate for the next round of capital inflow or when venture capitalists decide to exit. The US is already entering a new phase of a downturn, and it's expected that there will be plenty of 'down-rounds' that will become painful from an investor's perspective.

Regardless of the fact that slower or negative growth has increased materially for information technology sectors, many tech startups are starting to experience job losses as they try to reduce the bleeding of cash. It was evident from our discussions that many larger tech companies that have recently struggled to attract talent due to many startups offering stock (which are now deeply underwater as stock prices plummet),and are finding more talent coming to the market wanting a new and stable job. This instability in the US jobs market, not just in software/cloud but consumer companies, is becoming more challenging as companies find that they need to be rational with their decisions to pivot and sustain their businesses. 

A snapshot of how the US and global economy is performing as it signals a historic downturn

Capturing 'Quality' in a volatile and uncertain market

This year's global market correction reflects several concerns about the economic future. From a stock perspective, sharp declines across equity portfolios are putting investors under severe pressure to hold long-term return potential. In our experience, lower volatile portfolios focused on high quality companies with low levels of debt and high cash flow are an essential indicator of 'Quality'. They have the potential not only to provide superior risk-adjusted returns, but they may also exhibit defensive characteristics in times of market volatility. We expect that 'Quality' as a style will generate material alpha in this current environment.

Early in the downturn, higher quality companies were outperforming and this crisis has been quick to unmask inherent financial frailty of companies that exhibit a combination of stretched balance sheets, capital intensive businesses and economically sensitive earnings. We believe this trend should continue through the economic slump and in the early stages of the recovery - providing opportunities for investors.

How are we positioned in this environment?

Our portfolios remain fully invested, and whilst we adjust our expectations for this evolving environment, our 'Quality at a Reasonable Price' or 'QARP' style (investing in high quality businesses while not overpaying for them) we believe our valuation discipline has and will continue to hold us in good stead in challenging periods. As the market experiences further weakness, there are several opportunities that we have been following and we will likely see more eventuate throughout 2022. Investors should always remember that economic downturns aren't forever and should take a long-term view on their global equities which will help to position their portfolio for an uncertain future ahead.  

Holding your discipline

Airlie Funds Management

July 2022

Portfolio Managers John Sevior and Matt Williams have worked together in funds management for more than 30 years. In this session, they discuss what it's like to invest in the current market and how it compares with past 'extreme market conditions'. In addition, they assess which ASX companies could perform in these conditions.

Speakers:

Matt Williams, Portfolio Manager
John Sevior,  Portfolio Manager

Funds operated by this manager:

Airlie Australian Share Fund

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.

The Rate Debate - Episode 30

Can the RBA thread the needle?

Yarra Capital Management

03 August 2022

Funds operated by this manager:

Small-Caps

FundMonitors.com

July 2022

David Franklyn, Chief Investment Officer & Fund Manager at Argonaut Funds Management together with Robert Gregory, Founder and Portfolio Manager at Glenmore Asset Management, and Rodney Brott, CEO & Executive Director of DS Capital shared their thoughts regarding the Small-Cap market, its primary drivers and what opportunity it can provide.

Funds operated by this manager:

Argonaut Natural Resources Fund, Glenmore Australian Equities Fund, DS Capital Growth Fund

Semiconductors: The Next Big Opportunity?

Loftus Peak

July 2022

Funds operated by this manager:

Loftus Peak Global Disruption Fund

How much would higher immigration rates help equity markets?

Montgomery Investment Management

05 July 2022

Funds operated by this manager:

Montgomery (Private) Fund, Montgomery Small Companies Fund, The Montgomery Fund

Uncovering value amid the market sell off

Antipodes Partners Limited

June 2022

Funds operated by this manager:

Antipodes Asia Fund, Antipodes Global Fund, Antipodes Global Fund - Long Only (Class I)

Chris Gosselin, CEO of FundMonitors.com, speaks with Dean Fergie, Director & Portfolio Manager at Cyan Investment Management.

The Cyan C3G Fund has a track record of 7 years and 11 months and has outperformed the ASX Small Ordinaries Total Return Index since inception in August 2014, providing investors with an annualised return of 10.52% compared with the index's return of 5.26% over the same period.

Funds operated by this manager: Cyan C3G Fund