10k Words

Equitable Investors

May 2023

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Changes in the cost of capital remain front and centre with Japan's dividend yield surpassing the rest of the world's for the first time in 50 years and asset class yields converging as fund managers express bullishnes on bonds, with 30+ countries facing inverted yield curves and the futures market still pricing a decline in the Fed Funds rate. It is amazing how even having the ticker "AI" has been enough to attract buyers. Amidst such sentiment, Nvidia has joined the trillion dollar market cap club - being in the sector that has diverged from bonds of late. Such mega caps are living in a different world from small businesses facing into tighter lending. We look at the S&P 500's trends relative to interest rates and "QE" and how large cap growth has been above other market segments over the past decade. There's still not much joy in IPO markets - especially for those who didn't sell quickly. Finally, we take a look at the decline of cash in the Australian economy and the resurgence of commercial aircraft orders.

Japanese dividend yield exceeds the rest of the world for first time in 50 years

Source: Minack Advisors, Asian Century Stocks

Compression of yields across assets

Source: Financial Times

Fund Managers' bullish bonds, negative equities, relative to historical levels (June 2023 survey)

Source: Bank of America, [email protected]

33 countries have an inverted yield curves

Source: worldgovernmentbonds.com

Market expectations for Fed Funds Rate (as per futures)

Source: @CharlieBilello

Recent surge in price of C3.ai (Ticker "AI")

Source: TIKR

Stock code "ZOOM" took off when Zoom Video Communications (ZM) surged in 2020

Source: TIKR

Nvidia joins "Trillion Dollar" Market Cap Club

Source: Statista

Divergence between tech valuations & bond yields

Source: Bloomberg, Koyfin

Loan availability compared to three months ago

Source: NFIB Small Business Economic Trends May 2023

Fed tightening, EPS growth & PE multiple expansion/contraction

Source: @EquitOrr

S&P 500 performance and Federal Reserve net Quantitative Easing (QE)

Source: Bloomberg

US equities - growth v value over the past 10 years

Source: Equitable Investors, Koyfin

Recent US IPOs

Source: Koyfin

ASX IPOs in CY2023

Source: 61Financial

Sharp decline of cash's share of Australian payments

Source: RBA

Net orders for commercial aircraft

Source: The Economist

June 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.

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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.

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Webinar Recording | Resource Funds -

Analysing the Opportunities and Risks 

FundMonitors.com

27 June 2023

Resource funds can offer a unique avenue for capitalising on the growing demand for natural resources and the global shift towards sustainable energy and materials. In this webinar, we looked at the strategies and approaches employed by three successful resource fund managers and learn how they navigate the opportunities and risks associated with this asset class.

Watch the recording of our manager round table webinar, where we were joined by Dan Porter from Pure Asset Management, David Franklyn from Argonaut Funds Management, and Matthew Langsford from Terra Capital. They shared their views on this interesting and diverse market sector.

Hedge Clippings | 30 June 2023

CPI and Retail Sales Numbers throw doubt on Tuesday's RBA decision

May's CPI and Retail Sales numbers released by the ABS this week gave economists reason to reconsider where inflation really sits. However, looking through headlines to the details, the question remains: Will the numbers be sufficient to convince the RBA to hit the "pause" button next Tuesday? Even if they do hold off, it's likely to only be temporary, and in the longer term, there's little chance there'll be any meaningful relief for stressed mortgage holders for at least another year, and possibly two.

Taking a look at the Monthly CPI results first, which seasonally adjusted at 5.6% for the 12 months to May, and down from 6.8% in April, were, on the face of it, a cause for optimism. Stripping out volatile items (fruit and vegetables, fuel, holiday travel, and accommodation) the number was less encouraging at 6.4%, but still a marginal improvement on April's rise of 6.5%. Annual Trimmed Mean inflation (i.e. stripping out the extremes) was 6.1%, also down from April's figure of 6.7%. The first issue is fuel, which was the only negative number, falling 8% for the month, but as anyone who owns a motor vehicle (or at least pays at the bowser) would know, IS volatile, having risen 9.5% in the 12 months to April, and fallen 8.2% in the 12 months to March.

Of the items which significantly offset fuel's negative number, the largest increases were in every day (and therefore largely unavoidable) items, such as Bread and Cereals (+12.8%), Dairy (+15%), Food Products (11.5%), and Electricity (+14.1%), and all of which had been elevated at or around those levels for April and March. Leaving aside the question of whether suppliers and retailers of these categories are taking advantage because A) they're staples and therefore largely unavoidable purchases, or B) they can lay the blame for price rise on their suppliers or the overall consumer expectation of inflation, are the above numbers in part responsible (in conjunction with mortgage and housing) for consumer confidence and financial concerns as a whole?

Hedge Clippings rather selfishly notes that Alcohol is running below the inflationary average at 5.0%, down somewhat from the April and March numbers, but let's not go there.

Against this, Retail turnover (as reported by the ABS) for May rose 0.7%, following a flat result in April, and a rise of 0.4% in March, supported by a rise in spending on food and eating out, combined with a boost in spending on discretionary goods, as consumers took advantage of larger than usual promotional activity and sales in May, along with Mother's Day. As the ABS noted, "Food retailing has recorded a monthly rise for 16 or the last 18 months," and continued by saying that "most of the growth in food-related spending this year has been driven by rising prices."

Back to Tuesday's meeting and decision, the RBA will obviously be looking behind the headline numbers that the average consumer recalls, particularly the ongoing strength in the employment statistics, and the National Wage Case Decision increasing the minimum wage by 5.75% handed down in June, but yet to impact the numbers. As we noted at the outset, will the seasonally adjusted result of 5.6%, down from 6.8% be enough for the pause button to be pressed? Even if it is, we would expect it is far too early to budget for any reduction.

As much as the RBA is expecting inflation to improve in 2024/2025, there's no way they will risk letting persist at current levels (or worse) by acting too soon. That's assuming they can get the inflation genie back in the bottle by then, without triggering a recession. While everyone is aware of inflation, and few can avoid it, it is evident that it is only impacting the shopping habits of certain (although increasing) consumer demographics. Unfortunately, interest rates are the bluntest of instruments (and the only one) in the RBA's tool kit.

This week we held the last of our regular Webinars, with our COO Damen Purcell interviewing three guest fund managers, namely Matthew Langsford from Terra Capital, Dan Porter, from Pure Asset Management, and David Franklyn, from Argonaut Resources who discussed their approach to the opportunities and risks in the Resources Sector. Click here to view a recording (45 minutes) of the Webinar, and here to view each of the Fund's Profiles on www.fundmonitors.com.

News & Insights

Risk-adjusting small-cap upside | PURE Asset Management

Investment Perspectives: Do developers offer the best exposure to a recovering residential property | Quay Global Investors

May 2023 Performance News

Bennelong Concentrated Australian Equities Fund

Skerryvore Global Emerging Markets All-Cap Equity Fund

Rixon Income Fund

Bennelong Twenty20 Australian Equities Fund

Insync Global Capital Aware Fund

Bennelong Emerging Companies Fund

Digital Asset Fund (Digital Opportunities Class)

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AI Revolution

Insync Fund Managers

June 2023

Adobe has established itself as the indisputable standard in creative software. Commanding both recognition and reliance by professionals in graphic design, photography, videography, web design, and publishing. It is well positioned to benefit from AI.

Adobe has been leveraging its AI engine - Adobe Sensei, to power new AI features across its various product lines. Many of these new AI features, especially for Creative Cloud products, represent a potential paradigm shift in the day-to-day workflow and content creation of their users.

The realm of Generative AI has Adobe Firefly competing with current industry giants (DALL-E and Mid-Journey). Adobe however gains an edge utilizing licensed and out-of-copyright content, making it highly appealing to corporate markets. Large companies, constrained in content creation, can now profit from Generative AI, while trusting Adobe's reputation for reliability.

As the AI revolution unfolds Adobe stands as the unrivalled leader in content creation. It is already transforming the creative landscape and propelling content creators into limitless realms of possibility. Importantly it's an extremely profitable business with compounding sustainable earnings. Precisely the kind of business Insync loves to own. 

Funds operated by this manager:

Insync Global Capital Aware Fund, Insync Global Quality Equity Fund

Disclaimer
Equity Trustees Limited ("EQT") (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) ("Insync"), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.