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

Magellan Asset Management

August 2023

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

Funds operated by this manager:

Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund

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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.

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Hedge Clippings | 14 September 2023

After all the machinations which have surrounded Qantas over the past few weeks, and which have taken the focus of Hedge Clippings away from the real task of looking at economic issues and the performance of managed funds, it is probably time to get back to basics. Having said that, the trials (literal and figurative) facing Qantas, and in particular the new CEO, Vanessa Hudson, and Chairman Richard Goyder are far from over.

Hudson of course can, and will claim - or blame - her predecessor, although it seems like she either endorsed his policies, or didn't or couldn't stand up to his overbearing style. She'll no doubt get away with that excuse, but Goyder has nowhere to hide as chairman, and one who was cheer-leader-in-chief for the recently departed Irish elf. Goyder either believed Joyce was the "best CEO in Australia by a length of a straight" as he described him, or he was fooled into thinking so. Either way, it was a massive character judgment failure on his part, as well as one of corporate governance.

The upcoming Qantas AGM is scheduled for November 3rd, and should be a jam packed and fiery event. Qantas might even resort to selling non existing tickets to it, but even though it's scheduled just a few days before the Melbourne Cup, it's doubtful if the chairman will be referring to his previous racing analogy when farewelling his disgraced former CEO.

What the whole Qatar / flightless tickets debacle has done is to call into question the level of overt, or maybe covert, influence membership of the Qantas Chairman's Club wields throughout the corridors of Canberra and beyond. Power corrupts: Absolute power corrupts absolutely, or so the saying goes.  The issue in this case is not power, but undue influence, or the perception of it.

Didn't we say it was time to get back to basics of the economy?   

The hard/soft landing debate continues, both here and overseas - at least in the US, as it appears the landing in the UK is unlikely to be anything but hard. China's landing is likely to be bumpy at best, but getting an accurate picture of the world's second largest economy is anything but easy, coupled with the centralised and authoritarian decision making process. Australia's tightening phase would appear to be over, although it looks like rates won't come down anytime soon, given the unemployment rate remains sub 4%.

There are a few wild cards out there, as always. Saudi Arabia and Russia are in lockstep to reduce oil production and keep oil prices, and therefore inflation, high. Tensions around Taiwan remain, even if overshadowed by China's economic issues, and of course Ukraine remains an unknown outcome.

Thankfully it's footy finals season to take one's mind off such issues, although you can always stay up late / get up early to watch the Wallabies trying to get out of their pool into the quarter finals of the RWC.

Watch this space!

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Hedge Clippings | 08 September 2023

Yesterday marked what will probably be Philip Lowe's final speaking engagement whilst RBA Governor before handing over to his deputy Michele Bullock on 18th September.

Free from the shackles of his position and convention, the outgoing governor took the opportunity to set the record straight on what he had (and had not) promised, whilst also taking a few shots at the level of reporting and attention his previous statements and comments had received. Of course, whilst in the role he had carefully avoided having an all out war with the media (Eddie Jones, take a lesson in humility) understanding that one rarely gets the last word in - no doubt remembering the old adage "never to argue with the person with the microphone".

Whilst being pretty direct in his comments and opinion of the media, he was somewhat more subtle, but equally correct in also having a go at government in his speech entitled "Some Closing Remarks". Lowe stated the obvious: Government should carry some of the can for inflation and interest rates, and thus the property market and mortgage stress. In reality the RBA is very much the messenger, in spite of the so called independence.  It is the government of the day that has the authority and ability, plus a wide variety of potential policy tools to steer the economy, instead of leaving it to the RBA and the blunt instrument of monetary policy to do the work for them.

Fat chance of that happening! As Lowe said, it would require some "innovative thinking" which is a rare commodity in politicians, particularly once they're elected, and don't want to lose the benefits of office - even the unofficial ones, such as membership of the Qantas chairman's lounge, (which really should have been renamed Joyce's Jolly long ago).

History has shown we've had multiple examples of "innovative thinking" over the years - think Mark Johnson's 2009 report, Australia as a Financial Centre, or Ken Henry's 2010 Tax Review with its 138 recommendations, most of which are still gathering dust. The major item from the Henry Review which was implemented by the then Rudd Government was the move to create a resources Super Profit Tax. The proposal was highly controversial, and has been suggested as the main reason why Rudd lost power.

Both were announced with great fanfare (even if then Minister for Financial Services, Chris Bowen released his response in mid January, 2010, hardly likely to get anyone's serious attention) but neither Johnson's and Henry's efforts or recommendations resulted in little to no "Committed Action".

Bottom line - don't trust politicians to actually do anything innovative, even if it is clearly in the national interest, if it also involves personal risk - as Paul Keating said "in the race of life always back self interest - at least you know it's trying".

During his term as RBA Governor, Lowe did exactly what was required with the tools available to him, and given the cards he was dealt by the global economy, and policy of the day. He lowered rates to zero in response to COVID and government policy, which resulted in households and corporates being awash with cash, which along with Russia's invasion of Ukraine led to an outbreak of inflation. Like all central banks, he tightened rates (less than the US or UK) to stifle inflation, hopefully without choking the economy in the process.

The government takes the credit for low unemployment, but is happy for Lowe and the RBA to take the blame for high interest rates and mortgage stress, to the extent they declined to renew his term in office. It's the government's responsibility to ensure there's sufficient housing to accommodate an immigration level of 300,000+ this year which is helping to keep house prices high, but they won't take the blame when it hurts those under mortgage or rental stress.

Lowe will leave with a record of having set and kept to his narrow path, and what may shape up to be a soft landing - no mean feat. He should be applauded.

Meanwhile the government has been left with a mess of its own making with - whatever the outcome - a divisive referendum campaign, and egg, or worse on its face over the Qatar fiasco, as has the Qantas board.  Alan Joyce is probably public enemy Number 1 in Australia at present, and most people would be lining up to give him the following treatment:

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Sorting bubbles from justified inflations!

Alphinity Investment Management

August 2023

Funds operated by this manager:

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

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

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

Marcus Today

August 2023

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

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

First, You Need to Understand Fear

Fear and Clickbait

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

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

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

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

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

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

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

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

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

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

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

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

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

The Bottom Line

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

Author: Marcus Padley, Founder of Marcus Today

Funds operated by this manager:

Marcus Today Equity Income SMA, Marcus Today Growth SMA

Compelling case for bonds as recession looms

JCB Jamieson Coote Bonds

August 2023

Funds operated by this manager:

CC Jamieson Coote Bonds Active Bond Fund (Class A), CC Jamieson Coote Bonds Dynamic Alpha Fund, CC Jamieson Coote Bonds Global Bond Fund (Class A - Hedged)

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

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

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