NEWS
1 Apr 2021 - From the desk of Amit Lodha
From the desk of Amit Lodha Amit Lodha, Portfolio Managers, Fidelity International February 2021
Funds operated by this manager: Fidelity Asia Fund, Fidelity Australian Equities Fund, Fidelity China Fund, Fidelity Future Leaders Fund, Fidelity Global Emerging Markets Fund, Fidelity India Fund |
1 Apr 2021 - The 4 Bubbly Pockets of markets showing heightened risk for investors
The 4 Bubbly Pockets of markets showing heightened risk for investors Andrew Mitchell, Senior Portfolio Manager, Ophir Asset Management 10 March 2021 The ongoing surge in stock prices -- including the NASDAQ, now up almost 100% from its March 2020 low - has many investors fretting that stock markets are now in bubble territory and at risk of a crash. Indeed, according to one survey, the majority of investors now believe the US market is in bubble territory. It has become increasingly clear over the last few weeks that, whilst we don't believe the markets we invest in, Australian and global small and mid-caps, are in a bubble, some parts of investment markets are frothy, with stretched investor sentiment. Below, we also look at four pockets of exuberance in the market (Bitcoin, US IPOs, call options and growth-stock trading volumes) that -- while not being the 'four horsemen of the apocalypse' portending a major bear market -- are indicators that clearly suggest investors do need to be managing risk. At Ophir we are remaining focused on investing in quality companies at reasonable valuations, but also stress testing those companies' likely performance during a savage sell off, and in this environment, we are urging other investors to begin taking similar risk management measures. Exuberance Exhibit 1: Bitcoin The first bubbly pocket is Bitcoin. We can't help but notice the amount of noise surrounding the digital currency. We are constantly asked about its valuation. Even Uber drivers ask for our thoughts. And ads for Bitcoin trading courses and transacting platforms are becoming ubiquitous. This is not unexpected given the rise in price of Bitcoin over the last few years, putting other financial market bubbles in the shade (see chart). The Bitcoin ascent Importantly, though, Bitcoin is somewhere between a collectible and a currency (and not a particularly good one yet). So, in our view, it doesn't qualify as an asset because it doesn't generate cash flows from which to value it. This makes it ripe for speculation and a good barometer for when financial market sentiment is high. Exuberance Exhibit 2: SPAC IPOs Another measure of market exuberance is IPO issuance, which has ramped up in the US, particularly through what are called Special Purpose Acquisition Companies, or SPACs for short. These vehicles, often called 'blank cheque' companies have a two-year window to find a private company target which they merge with to effectively list it, or else hand back the capital to investors. Private office leasing company WeWork is the latest in a long line said to be in talks with a SPAC to go public. IPO issuance tends to increase when company owners think they can raise capital, or sell out, at heightened valuations in the market, and generally not when it represents good value for buyers. SPACs have been around for a number of years, but they raised six times the amount of money in 2020 than they did in 2019. SPACs have emerged from a relative backwater to become the dominant form of listing for US companies, now currently comprising over 50% of IPO activity in the US. Their boom has come with SPACs bringing early-stage higher-growth businesses, particularly technology businesses, to market. There is huge demand for these stocks from retail traders with more time on their hands and less aversion to volatility. The demand has been fuelled by interest rates near 0%, which means the opportunity cost for investors of having their cash tied up in a SPAC waiting for an acquisition is low. The 2020 SPAC IPO boom has continued into early 2021 (as of 21 January 2021) Source: Dealogic, Goldman Sachs Global Investment Research Exuberance Exhibit 3: retail call options This next measure of exuberance is tied to the democratisation of investing that has given retail investors cheap access to trading platforms and financial information. When combined with government stimulus cheques and extra time on their hands, small retail traders have been investing heavily in call options on individual listed companies. These options essentially give the buyer the right to buy a share in a company at a certain price (strike price) and the trader executes the option if the share price rises above the strike price. They are generally bought if the investor is bullish on the company and its price is rising higher; but they are popular with retail traders because options are a cheaper way to get exposure to that potential price rise. As can be seen in the chart below, call option volumes for small parcels (less than 10 contracts) that retail traders tend to buy, have gone through the roof over the last year, and particularly the last few weeks. Call Option Buy Minus Sell at Open for investors with less than 10 contracts for options on individual US equities (In million contracts. Last observation is for the week ending 29th Jan 2021) Source: OCC, Bloomberg Finance L.P., J.P. Morgan Such betting by often value agnostic retail traders should give long term investors pause as this may not be a particularly sustainable source of demand behind price rises of companies. Exuberance Exhibit 4: growth stock volume And, finally, trading volumes in the most expensive growth-orientated companies has exploded recently (see chart). Whilst not at the dot.com levels from 2000 at present, those companies trading at greater than 20 times Enterprise Value-to-Sales ratios (an historically expensive level) are making up a much bigger part of the market and account for around a quarter of all trading activity. There are some rational reasons for this, including some large high-growth (and high valuation) technology companies further entrenching their dominate positions during COVID, but it does suggest caution is warranted. Trading in stocks with extremely high EV/sales ratios has surged (as of 21 January 2021: LTM EV/sales ratios of stocks with LTM revenues > $50 million) Source: Compustat, Goldman Sachs Global Investment Research A buying opportunity In the short term, we would not be surprised to see a 5-10% pull back in the major share markets given the extended level of investor optimism we see in some corners at present. Timing, though, for any pullbacks is always difficult to judge when it is sentiment based. We would see such a pull back as a buying opportunity in our funds and a healthy occurrence for markets. We think it less likely that a major bear market is around the bend given the supporting backdrop to corporate earnings as the vaccines bring the virus under control, and central banks' willingness to keep short-term and long-term interest rates lower for even longer in the absence of signs of inflation. This should support the attractiveness of equities relative to bonds for some time yet. Our risk management plan to deal with bubbly markets So whilst we don't see the markets we invest in at 'bubble' valuation territory, some measures of investor sentiment described above do argue for caution in company selection. Beyond being well diversified by company, sector and geography and not overexposed to any particular investing style, our risk-management plan ensures the companies we hold in our funds have a high probability of upgrading earnings at their next results announcement and are trading on reasonable valuations compared to fundamentals (cash flow and earnings) and peers. Moreover, we track how the company is likely to fair in an economic and market 'meltdown'. This includes tracking measures related to liquidity, dividend yield, gearing and how opaque the company's business model is. We aggregate these measures at a portfolio level to understand how we are faring across each metric, ensuring the exposures are calibrated appropriately for where we are at in the market cycle. In conjunction these measures help provide downside protection in the event of any market sell off. At present whilst largely being fully invested within our funds, we are paying particular attention to not overpaying for growth and have become more conservatively positioned across our meltdown risk metrics at a fund level. Funds operated by this manager: Ophir Global Opportunities Fund, Ophir High Conviction Fund (ASX: OPH) |
31 Mar 2021 - Fact Sheet | VPEG4
31 Mar 2021 - Presentation | Vantage Private Equity Growth 4
31 Mar 2021 - Vantage Private Equity Growth 4 | Dec 2020 Quarterly Report
31 Mar 2021 - Over The Inflation Hill
Over The Inflation Hill Charlie Jamieson, Chief Investment Officer, Jamieson Coote Bonds 09 March 2021 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), CC Jamieson Coote Bonds Global Bond Fund (Class B - Unhedged) |
31 Mar 2021 - Whoa-yeah, the divs are getting bigger
Whoa-yeah, the divs are getting bigger Dr Don Hamson, Managing Director, Plato Investment Management 15 March 2021
Funds operated by this manager: Plato Australian Shares Income Fund (Class A), Plato Global Market Neutral Fund (Class A), Plato Global Shares Income Fund (Class A) |
30 Mar 2021 - Policing the platforms
Policing the platforms John Guinness and Sumant Wahi, Portfolio Managers, Fidelity International March 2021
Funds operated by this manager: Fidelity Asia Fund, Fidelity Australian Equities Fund, Fidelity China Fund, Fidelity Future Leaders Fund, Fidelity Global Emerging Markets Fund, Fidelity India Fund |
29 Mar 2021 - Strengthening our Committment to ESG
24 Mar 2021 - Are Cyclicals the New Defensives?
Are Cyclicals the New Defensives? Douglas Isles, Investment Specialist, Platinum Asset Management 09 March 2021 In the February 2021 Monthly Update for the Platinum International Fund we noted that: "When we look at long term (i.e. 35 years) valuation analysis, relative to asset values, cyclical stocks still look cheaper than their averages, while defensives were only more expensive at the peak of the technology bubble." This brief note expands on the detail in that valuation comment. Over time, one simple valuation metric often used to identify stocks, sectors and countries that are out of favour or experiencing a temporary setback, is the Price-to-Book ratio (P/B). Mathematically, a P/B is equal to Price-to-Earnings (P/E) multiplied by Earnings-to-Book (or ROE). A low P/B can capture either a low valuation (on an earnings basis) and/or low returns on equity (coincident with cycle lows, or transient challenges) versus history. Our quant analyst team has their own classification that we use for cyclical and defensive sectors, which is more granular than the Global Industry Classification Standard (GICS). We split 19 sectors into cyclicals or defensives and track them over time. Today, according to our analysis, around 55% of the global market's capitalisation can be categorised as cyclicals and 45% as defensives. We classify cyclicals to be: retail; autos; banks; property; commercial services; industrial services; industrials; process industries; energy; materials; and hardware. The balance of the market we call defensives, and include: precious metals; consumer staples; healthcare; insurance; infrastructure; content; software; and communications. The Price/Book chart is key.
Source: FactSet Research Systems, Platinum Investment Management Limited. If we compare the cyclicals in aggregate on a P/B basis, while they have experienced a sharp rebound from the lows of the COVID-19 sell-off, they are not expensive relative to historical levels, especially when considering today's near-record-low bond yields, which are often used to justify the case for paying more for equities. While defensives, on the contrary, are higher than most of the last 35 years, excluding the technology bubble. On a relative basis, the gap between the two groupings is close to its widest level of the last 35 years. In simple terms, this suggests that investing in cyclicals still makes sense, particularly given our observations in the February 2021 Monthly Update that: "A change in the 'real world' is a move away from monetary policy to fiscal policy, after decades of restraint by governments. This favours real companies over virtual ones, at the margin. With data on the recovery stronger than anyone would have expected in April/May 2020, the market is warming to sectors that were out of favour." From a performance outcome perspective, over the long bull market from 2009-2020, the best periods for Platinum's global equity strategy relative to market returns were in 2009, 2013 and 2017, which were coincident with the expansion of cyclical P/B multiples. This is a similar phenomenon to recent months. However, prior to the global financial crisis and especially from 2005-2008, cyclical areas, while performing well (particularly financials and resources), were less attractive and hence this relationship with our performance was not the same. In other words, Platinum's global equity strategy has not simply been a play on cyclicals over time, but we have tended to invest well in cyclicals when they are cheap. On the classification used by the quant team in assigning the 19 sectors and matching them to the portfolio on 26 February 2021, more than 75% of the long book was categorised as cyclical, with less than 25% in the defensive grouping, consistent with the discussion above and our views expressed over time about where there is value in the market. Thinking about cyclicals (or economically sensitives) as the opportunity rather than the common short-hand of 'value' (versus 'growth') is more instructive and captures a better sense of market dynamics. Bringing this back to themes in the portfolio and as the February 2021 Monthly Update notes: "The majority of the portfolio continues to be classified as belonging to the following thematics: Growth industrials, semiconductors, travel-related, Chinese consumer, healthcare, internet-related (though much reduced) and metals." DISCLAIMER: This article has been prepared by Platinum Investment Management Limited ABN 25 063 565 006, AFSL 221935, trading as Platinum Asset Management ("Platinum"). This information is general in nature and does not take into account your specific needs or circumstances. You should consider your own financial position, objectives and requirements and seek professional financial advice before making any financial decisions. You should also read the latest relevant product disclosure statement before making any decision to acquire units in any of our funds, copies are available at www.platinum.com.au. Past performance is not a reliable indicator of future results. Some numbers have been rounded. The commentary reflects Platinum's views and beliefs at the time of preparation, which are subject to change without notice. No representations or warranties are made by Platinum as to their accuracy or reliability. Commentary may also contain forward-looking statements. These forward-looking statements have been made based upon Platinum's expectations and beliefs. No assurance is given that future developments will be in accordance with Platinum's expectations. Actual outcomes could differ materially from those expected by Platinum. To the extent permitted by law, no liability is accepted by Platinum for any loss or damage as a result of any reliance on this information. Funds operated by this manager: Platinum Asia Fund (C Class), Platinum Asia Fund (P Class), Platinum European Fund (C Class), Platinum European Fund (P Class), Platinum Global Fund, Platinum International Brands Fund (C Class), Platinum International Brands Fund (P Class), Platinum International Fund (C Class), Platinum International Fund (P Class), Platinum International Health Care Fund (C Class), Platinum International Health Care Fund (P Class), Platinum International Technology Fund (C Class), Platinum International Technology Fund (P Class), Platinum Japan Fund (C Class), Platinum Japan Fund (P Class), Platinum Unhedged Fund (C Class), Platinum Unhedged Fund (P Class) |