NEWS
22 Aug 2024 - Dion Hershan: 805 days down (and counting)
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Dion Hershan: 805 days down (and counting) Yarra Capital Management July 2024 With interest rate hikes starting to bite, Dion Hershan, Head of Australian Equities, asks just how resilient will Australia's economy prove to be against some obvious strengthening headwinds? Many people have marvelled at the resilience of the Australian economy and its recession proof qualities over the last two years in the face of 13 interest rate hikes which kicked off in May 2022 (some 805 days ago). However, given the lags associated with monetary policy are 'long and variable', we wonder if it may still be a little premature to make that call. Rather than calling out its 'resilience', perhaps it's Australia's binge on five specific factors (below) and the delayed impact of rate hikes that have masked some underlying fragility. F24's 'resilience', and the very modest 1.2% GDP growth, can be traced to:
The consumer (50% of GDP) has remained stable despite very weak confidence (84.4, in-line with GFC lows) (refer chart) but drained the savings rate down to 0.9% in March 2025 (from 6.7% pre-COVID). At an average savings rate of 90 bps, you can safely assume more than half the population currently has a negative saving rate. After any good binge there is typically indigestion or a hangover, which could well be the phase we are heading into. Chart 1: Consumption growth & consumer confidence are at ~10-15 year lows
Source: YarraCM, Westpac, ABS.Many of these factors now represent formidable headwinds, signalling that the hangover might soon be on the way. In particular:
The average consumer can't run down their savings any further, creating real distress for many people and a forced cut in consumption. And with the economy remaining at close to full employment and inflation above target, meaningful rate cuts are at best a long shot. It appears more likely that we are in for a slow grind. In our view, we're in an environment where we need to tread very carefully after the recent rally, with consensus expectations as realistic as Trump not getting fact checked for the rest of the election campaign or Biden making a comeback. I would be astounded if ASX F25 EPS meets consensus EPS growth at +7.9%, ASX 200 industrials comes in at 8.8% and 35.3% for small cap industrials (refer chart) and if 55% of companies in fact have double digit EPS growth - all of which is baked into consensus. I am taking bets on the quadrella if anyone wants to place one! Chart 2: F25 earnings expectations appear highly optimistic
Source: Macquarie.So as we head into F25, we remain obsessive about businesses with very little economic sensitivity (e.g. TCL, RMD, APA, ORG), and continue to focus on turnarounds (e.g. SGM, TAH, BAP) and businesses with strong structural growth (e.g. XRO, CAR, RMD) that can avoid the hangover or indigestion. |
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Funds operated by this manager: Yarra Australian Equities Fund, Yarra Emerging Leaders Fund, Yarra Enhanced Income Fund, Yarra Income Plus Fund |
21 Aug 2024 - Performance Report: Bennelong Concentrated Australian Equities Fund
[Current Manager Report if available]
21 Aug 2024 - Performance Report: Glenmore Australian Equities Fund
[Current Manager Report if available]
21 Aug 2024 - What's Social Proofing?
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What's Social Proofing? Insync Fund Managers July 2024 Observing where the world is moving to is crucial to future-proofing portfolios and generating strong consistent returns. Demographic and technological shifts are rapidly changing consumer buying patterns. While understanding numbers is important, grasping human behaviour delivers deeper insights. Diligently analyzing these shifts and their implications helps identify future winners. Social proof is a significant behavioural phenomenon now impacting purchasing decisions. It establishes trust and credibility for brands. Positive experiences shared by others reduce perceived risk and increase consumer confidence. With overwhelming choices, social proof guides consumers simplifying decision-making. Humans are social creatures, and seeing others adopt a product creates a desire to align with perceived norms. Social commerce is transforming online shopping by integrating inspiration, research, and purchase into a seamless experience. This shift enhances consumer behaviour, with social commerce poised for remarkable growth, outpacing traditional e-commerce. In 2023, it accounted for 18.5% of worldwide online sales and is projected to exceed $1 trillion by 2026. Key to social commerce's success is its authenticity and user-centric approach. Consumers discover products through peer, influencer, and brand content, fostering trust and engagement. Platforms like Instagram and TikTok are essential research tools for the Gen Z generation, emphasizing relatable and dynamic content. AI-powered recommender systems drive user engagement and targeted advertising, with companies like Meta leveraging vast amounts of data to deliver personalized content, improving ad returns and customer experiences. Funds operated by this manager: Insync Global Capital Aware Fund, Insync Global Quality Equity Fund Disclaimer |
20 Aug 2024 - Performance Report: Bennelong Australian Equities Fund
[Current Manager Report if available]
20 Aug 2024 - Performance Report: Argonaut Natural Resources Fund
[Current Manager Report if available]
20 Aug 2024 - Stock Story: National Grid
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Stock Story: National Grid Magellan Asset Management July 2024 |
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Growing electricity demand combined with the desire of governments to decarbonise their economies has presented substantial opportunities for capital investment in energy infrastructure. National Grid is a major beneficiary of these trends. The company is poised to grow the scale of its operations at a record pace over the next six years, with expectations they will commission more new and upgraded infrastructure than in the previous 30 years. National Grid has posted strong operating and financial performance over many years and now faces a prolonged period of unprecedented investment that will lead to long-term earnings growth. BackgroundNational Grid is a UK-based multinational whose primary activities are the operation of transmission and distribution of electricity and gas across the UK and Northeastern USA. National Grid operates through the following business units:
In the year ended 31 March 2024 (FY24), the Underlying Operating Profit for Continuing Operations for National Grid increased by 6% at constant exchange rates to £4,773 million. Capital investment increased to a record £8,235 million, an increase of 11% on the previous year. National Grid delivered good operational performance over FY24 with high levels of network reliability; for example, Transmission and Distribution reliability remained steady at 99%-100% across all company-owned networks. The company is committed to achieving net zero and Scope 1 and 2 emissions fell by 6% in FY24. OpportunitiesThe critical need for economies to invest in energy infrastructure has never been more pressing. Investment in an economy's energy infrastructure promotes economic growth, improves manufacturing and technology capabilities and enables decarbonisation - a key step in addressing climate change. Governments in the company's key jurisdictions have all made ambitious climate targets - the UK government has targeted a fully decarbonised electricity system by 2035 and New York has targeted a 100% zero emissions electricity sector by 2040 while Massachusetts has targeted a 50% reduction in carbon emissions by 2030. New York, Massachusetts, Vermont and New Hampshire all have ambitions to reach net zero by 2050. This decarbonisation in the US northeast and the UK is the dominant driver of growth for the company's business portfolio with the expansion and strengthening of energy systems being critical to the wider energy transition. "...artificial intelligence and advanced computing has led to increased growth in underlying electricity demand..."The impacts of decarbonisation on the energy infrastructure sector are enormous. Across the UK, New England and New York, National Grid expects electrification of heat and transport to increase electricity demand from its networks by between 37% and 51% by 2035. In the US, renewable energy capacity could almost triple by 2032 to 110 gigawatts (GW) as the Inflation Reduction Act and Infrastructure Investment and Jobs Act encourage investment in the sector. In addition, the development of artificial intelligence and advanced computing has led to increased growth in underlying electricity demand, placing further demands on the capacity and reliability of existing power systems. As a consequence, policymakers in the UK and the US are encouraging investment in electricity transmission and distribution and other energy infrastructure. Given the bulk of earnings generated by National Grid are derived from regulated energy utility businesses, this encouragement can be expected to lead to increased investment, which leads ultimately to earnings growth. Capital Investment PlanNational Grid invested £33 billion across its businesses over the past five years. In May 2024, the company announced that it expects to invest £60 billion in the five years to the end of March 2029, approximately double the level of investment of the past five years. The significant step up in capital investment will deliver annual group asset growth of around 10% and 6%-8% underlying EPS CAGR from a 2024/25 baseline. The scale of the investment is staggering. For example, the company's UK Electricity Transmission business is expected to install more than 12,000 kilometres of new cables across 17 new projects - the equivalent to the diameter of planet Earth. This investment plan is dominated by investment in electricity networks and will mean approximately 80% of group assets will be electric by 2029 compared to approximately 70% of assets today. Given the commitment of governments to ongoing decarbonisation, the increased exposure of the company to electricity networks positions them well to benefit from ongoing capital investment over the coming decades. By Gerald Stack, Head of Infrastructure & Portfolio Manager |
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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, Magellan Core ESG Fund Important Information: 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. 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 a Magellan 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. Magellan 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 Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Magellan 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 Magellan. |
The three factors driving stock returns (pdf format)
19 Aug 2024 - Performance Report: Skerryvore Global Emerging Markets All-Cap Equity Fund
[Current Manager Report if available]
19 Aug 2024 - Performance Report: DS Capital Growth Fund
[Current Manager Report if available]
19 Aug 2024 - New Funds on Fundmonitors.com
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