NEWS
28 Sep 2022 - 10k Words
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10k Words Equitable Investors September 2022 Earnings season on the ASX has come to a close with a historically low number of downgrades on the FY22 numbers, as tracked by Wilsons, but more downgrades than upgrades to EPS and dividend guidance for FY23, based on Evans & Partners' numbers. The one year return on Bloomberg's benchmark for the bond market is down 19% over the past 12 months. While the Australian yield curve is sloping upwards, the US yield curve is currently inverted. An inverted yield curve has historically led to some type of "break" in the system, @Marlin_Capital warns. But the inflation data is potentially turning - Yardeni highlights plunging US gasoline prices. Given the European situation, nuclear power and uranium are seeing a revival of sorts, at least with Japan revisiting its stance. Uranium equities have been advancing and the Washington Post ran a Blooomberg piece highlighting the unsavoury sources of current uranium supply. Taking a look at equities, Bespoke's optimistic take on the June half-year's poor showing is that such a poor first six months is typically followed by 12 months of 20%+ returns for the S&P 500. We thought it was interesting how closely the Grayscale Ethereum Trust has traded in comparison with the ARK Innovation ETF - a speculative cryptocurrency vehicle alongside a high growth tech investment vehicle. And potentially adding some colour to that is Visual Capitalist's charting of the demise of long-term investing. Aggregate ASX earnings downgrades announced over course of 12 month reporrting cycle
Source: Wilsons Net guidance upgrades for FY23f for the S&P/ASX 200
Source: Evans & Partners Bloomberg Global-Aggregate Total Return Index Value Unhedged USD
Source: RBA Australian and US yield curves
Source: worldgovernmentbonds.com An inverted yield curve has historically led to some type of "break" in the system Source: @Marlin_Capital, Federal Reserve of St Louis US gasoline priced have plummeted as consumption is reduced relative to a year earlier Source: Yardeni Research North American uranium ETFs on the rise (URA, URNM, U.U)
Source: TIKR, Equitable Investors Authoritarian nations dominate the world's uranium production
S&P 500 has been up at least 22% in the year following prior 20%+ two-quarter drops
Source: Bespoke Grayscale Ethereum Trust (orange) and ARK Innovation (green) moving together
Source: TIKR, Equitable Investors The average holding period of shares on the NYSE has fallen to new lows
Source: Visual Capitalist September 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. The content of this blog should not be relied upon in making investment decisions. Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information. 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. Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components. Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog |
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27 Sep 2022 - Performance Report: PURE Income and Growth Fund
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| Fund Overview | For fund investors, The Income and Growth Fund offers a unique risk/return profile. This form of investing includes a high yield, yet retains equity exposure to successful growth stories. Furthermore, the Fund's superior position in the investee Company's capital structure insulates investors from capital loss. PURE targets a return of 15% per annum through a mixture of Income (8-9%) and capital growth. While most investments involve ASX listed companies, the fund mandate retains modest flexibility to capitalise on attractive pre-IPO opportunities. |
| Manager Comments | The PURE Income and Growth Fund has a track record of 3 years and 9 months and therefore comparison over all market conditions and against its peers is limited. However, the fund has outperformed the ASX 200 Total Return Index since inception in December 2018, providing investors with an annualised return of 15.36% compared with the index's return of 9.63% over the same period. On a calendar year basis, the fund has only experienced a negative annual return once in the 3 years and 9 months since its inception. Over the past 12 months, the fund's largest drawdown was -3.58% vs the index's -11.9%, and since inception in December 2018 the fund's largest drawdown was -5.86% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in February 2020 and lasted 3 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by May 2020. The Manager has delivered these returns with 4.22% less volatility than the index, contributing to a Sharpe ratio which has fallen below 1 two times over the past three years and which currently sits at 1.14 since inception. The fund has provided positive monthly returns 71% of the time in rising markets and 43% of the time during periods of market decline, contributing to an up-capture ratio since inception of 45% and a down-capture ratio of 2%. |
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27 Sep 2022 - Performance Report: Delft Partners Global High Conviction Strategy
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| Fund Overview | The quantitative model is proprietary and designed in-house. The critical elements are Valuation, Momentum, and Quality (VMQ) and every stock in the global universe is scored and ranked. Verification of the quant model scores is then cross checked by fundamental analysis in which a company's Accounting policies, Governance, and Strategic positioning is evaluated. The manager believes strategy is suited to investors seeking returns from investing in global companies, diversification away from Australia and a risk aware approach to global investing. It should be noted that this is a strategy in an IMA format and is not offered as a fund. An IMA solution can be a more cost and tax effective solution, for clients who wish to own fewer stocks in a long only strategy. |
| Manager Comments | The Delft Partners Global High Conviction Strategy has a track record of 11 years and 1 month and has outperformed the Global Equity Index since inception in August 2011, providing investors with an annualised return of 14.1% compared with the index's return of 12.56% over the same period. On a calendar year basis, the strategy has experienced a negative annual return on 2 occasions in the 11 years and 1 month since its inception. Over the past 12 months, the strategy's largest drawdown was -8.81% vs the index's -15.77%, and since inception in August 2011 the strategy's largest drawdown was -13.33% vs the index's maximum drawdown over the same period of -15.77%. The strategy's maximum drawdown began in February 2020 and lasted 1 year, reaching its lowest point during July 2020. The strategy had completely recovered its losses by February 2021. During this period, the index's maximum drawdown was -13.19%. The Manager has delivered these returns with 1.1% more volatility than the index, contributing to a Sharpe ratio which has fallen below 1 four times over the past five years and which currently sits at 1.05 since inception. The strategy has provided positive monthly returns 88% of the time in rising markets and 14% of the time during periods of market decline, contributing to an up-capture ratio since inception of 96% and a down-capture ratio of 90%. |
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27 Sep 2022 - Performance Report: ASCF High Yield Fund
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| Fund Overview | Does not require full valuations on loans <65% LVR. Borrowing rates are from 12% per annum on 1st mortgage loans and 16% per annum on 2nd mortgage/caveat loans. Pays investors between 5.55% - 6.25% per annum depending on their investment term. |
| Manager Comments | The ASCF High Yield Fund has a track record of 5 years and 6 months and has outperformed the Bloomberg AusBond Composite 0+ Yr Index since inception in March 2017, providing investors with an annualised return of 8.53% compared with the index's return of 1.19% over the same period. On a calendar year basis, the fund hasn't experienced any negative annual returns in the 5 years and 6 months since its inception. Over the past 12 months, the fund hasn't had any negative monthly returns and therefore hasn't experienced a drawdown. Over the same period, the index's largest drawdown was -10.78%. Since inception in March 2017, the fund's largest drawdown was 0% vs the index's maximum drawdown over the same period of -12.4%. The Manager has delivered these returns with 4.08% less volatility than the index, contributing to a Sharpe ratio which has consistently remained above 1 over the past five years and which currently sits at 21.32 since inception. The fund has provided positive monthly returns 100% of the time in rising markets and 100% of the time during periods of market decline, contributing to an up-capture ratio since inception of 79% and a down-capture ratio of -74%. |
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27 Sep 2022 - Performance Report: Bennelong Kardinia Absolute Return Fund
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| Fund Overview | There is a slight bias to large cap stocks on the long side of the portfolio, although in a rising market the portfolio will tend to hold smaller caps, including resource stocks, more frequently. On the short side, the portfolio is particularly concentrated, with stock selection limited by both liquidity and the difficulty of borrowing stock in smaller cap companies. Short positions are only taken when there is a high conviction view on the specific stock. The Fund uses derivatives in a limited way, mainly selling short dated covered call options to generate additional income. These typically have less than 30 days to expiry, and are usually 5% to 10% out of the money. ASX SPI futures and index put options can be used to hedge the portfolio's overall net position. The Fund's discretionary investment strategy commences with a macro view of the economy and direction to establish the portfolio's desired market exposure. Following this detailed sector and company research is gathered from knowledge of the individual stocks in the Fund's universe, with widespread use of broker research. Company visits, presentations and discussions with management at CEO and CFO level are used wherever possible to assess management quality across a range of criteria. |
| Manager Comments | The Bennelong Kardinia Absolute Return Fund has a track record of 16 years and 4 months and has outperformed the ASX 200 Total Return Index since inception in May 2006, providing investors with an annualised return of 7.61% compared with the index's return of 6.16% over the same period. On a calendar year basis, the fund has experienced a negative annual return on 2 occasions in the 16 years and 4 months since its inception. Over the past 12 months, the fund's largest drawdown was -10.52% vs the index's -11.9%, and since inception in May 2006 the fund's largest drawdown was -11.71% vs the index's maximum drawdown over the same period of -47.19%. The fund's maximum drawdown began in June 2018 and lasted 2 years and 6 months, reaching its lowest point during December 2018. The fund had completely recovered its losses by December 2020. During this period, the index's maximum drawdown was -26.75%. The Manager has delivered these returns with 6.6% less volatility than the index, contributing to a Sharpe ratio which has fallen below 1 five times over the past five years and which currently sits at 0.63 since inception. The fund has provided positive monthly returns 87% of the time in rising markets and 32% of the time during periods of market decline, contributing to an up-capture ratio since inception of 15% and a down-capture ratio of 55%. |
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27 Sep 2022 - Webinar Replay: Catalyst Fund
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L1 Capital Webinar Replay: Catalyst Fund L1 Capital September 2022 WEBINAR REPLAY | L1 Capital Catalyst Fund | September 15, 2022
Speaker: James Hawkins, Partner & Head of L1 Capital's Catalyst Fund Time Stamps: • 0.44 Fund overview • 2.50 Reflections from the first year • 4.49 Activist market observations • 13.17 Questions from investors |
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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 |
27 Sep 2022 - Investment Perspectives: Why rising interest rates aren't working (yet)
26 Sep 2022 - Performance Report: Airlie Australian Share Fund
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| Fund Overview | The Fund is long-only with a bottom-up focus. It has a concentrated portfolio of 15-35 stocks (target 25). The fund has a maximum cash holding of 10% with an aim to be fully invested. Airlie employs a prudent investment approach that identifies companies based on their financial strength, attractive durable business characteristics and the quality of their management teams. Airlie invests in these companies when their view of their fair value exceeds the prevailing market price. It is jointly managed by Matt Williams and Emma Fisher. Matt has over 25 years' investment experience and formerly held the role of Head of Equities and Portfolio Manager at Perpetual Investments. Emma has over 8 years' investment experience and has previously worked as an investment analyst within the Australian equities team at Fidelity International and, prior to that, at Nomura Securities. |
| Manager Comments | The Airlie Australian Share Fund has a track record of 4 years and 3 months and therefore comparison over all market conditions and against its peers is limited. However, the fund has outperformed the ASX 200 Total Return Index since inception in June 2018, providing investors with an annualised return of 10.07% compared with the index's return of 7.5% over the same period. On a calendar year basis, the fund hasn't experienced any negative annual returns in the 4 years and 3 months since its inception. Over the past 12 months, the fund's largest drawdown was -16.29% vs the index's -11.9%, and since inception in June 2018 the fund's largest drawdown was -23.8% vs the index's maximum drawdown over the same period of -26.75%. The fund's maximum drawdown began in February 2020 and lasted 9 months, reaching its lowest point during March 2020. The fund had completely recovered its losses by November 2020. The Manager has delivered these returns with the same level of volatility as the index, contributing to a Sharpe ratio which has fallen below 1 four times over the past four years and which currently sits at 0.63 since inception. The fund has provided positive monthly returns 97% of the time in rising markets and 12% of the time during periods of market decline, contributing to an up-capture ratio since inception of 111% and a down-capture ratio of 97%. |
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26 Sep 2022 - Look beyond market noise to unlock China's growth
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Look beyond market noise to unlock China's growth abrdn August 2022 Market sentiment on China has become especially fragile of late amid fears over near-term growth. However, we see reasons to be positive and urge investors to think longer term and ignore market noise. Hot topics among our investment teams include zero-Covid policy, US-China tensions, monetary and fiscal easing, the weak economic backdrop, a beleaguered property sector and regulatory oversight. China's economy contracted 2.6% in the second quarter this year on the back of Covid-19 lockdowns and a real estate sector under severe liquidity stress due to continued government deleveraging. Of course, these headwinds will likely trigger further monetary and fiscal policy easing, which will support China's economy. Chiefly we expect infrastructure spending and modest interest rate cuts. In the absence of strong stimuli, we're anticipating a gradual turnaround. Our Research Institute is forecasting year-on-year GDP growth of about 3% in 2022 - below market consensus of close to 4%. We see authorities have levers to stabilise the property sector, and growing policy support reaffirms Beijing's commitment. Reportedly they're considering a rescue fund to deliver unfinished residential projects. While it may be insufficient to shore up buyers' confidence, it's a step in the right direction. Further, we expect policymakers to dilute or discard their zero-Covid strategy over time, most likely after the Party's 20th National Congress this year. So we see lockdown effects on growth dissipating. Similarly we see regulatory pressures easing. At a recent Politburo meeting we noted support for expanding China's universe of digital platforms and standardising supervision. Stable regulation will help to improve investor confidence and could drive multiple re-ratings for e-commerce companies. Clearly, geopolitical risk is hard to predict and we expect heightened US-China tensions to last for some time. But we view such tensions as periodic and part of an evolving geopolitical landscape. Our base case is that Beijing will not engage in direct military conflict with Taiwan in the near term. We think cooler heads will prevail in recognition of the heavy cost to economies and global stability. We believe imposing sanctions on Taiwan would be contrary to Beijing's own economic interests, while more military drills around the Taiwan Strait risk disrupting global supply chains and logistics. So what might investors expect? Here we outline our investment teams' China views. Equity teamIt's early for China's economy to show strong signs of recovery on the back of easing measures. So we expect equity markets to remain rangebound in the near term. But we're constructive on the outlook as stimulus measures start to work their way through the system in the second half of 2022. "We're constructive on the outlook as stimulus measures start to work their way through the system in the second half." Companies have started reporting their first-half results, with investors now more focused on analysing fundamentals to understand their underlying strengths and weaknesses. Given our focus on high-quality stocks, we're optimistic about the earnings resilience of our holdings. Valuations also look attractive. The MSCI China A Onshore Index's 12-month forward price-earnings ratio is 11.6x - comfortably below 15.4x for MSCI World and against a five-year average of 12.6x.1 China aims to reduce real estate's contribution to GDP growth due to the sector's high leverage. We have positioned our equity portfolios around the following five themes that we think will enjoy state support and are deemed critical to give China a competitive edge in its economic rivalry with the US: Aspiration: rising affluence leading to fast growth in premium consumption; Fixed income teamWith inflation not an issue, we expect stronger fiscal policy-easing this year and further rate cuts over the next 12 months. However, we suspect growth in infrastructure investment might disappoint after a strong first half. Momentum in the property sector is too weak for it to recover this year. Property sales have fallen sharply and will likely stay low amid impaired consumer confidence. However, we think state-owned enterprises (SOEs) in the sector with continued access to funding are well-placed to outperform. Additionally, with the rollout of more co-ordinated government support, we see potential for stabilisation among large, well-established privately owned enterprise (POE) developers. More generally, Chinese SOEs have enjoyed healthy demand in recent months and we expect them to retain strong government support, although we remain cautious about valuations. We think onshore SOE spreads will remain tight in coming months. We have been trimming core SOE positions over rich valuations relative to Asian and global peers. For the same reason we underweight Chinese financials in the offshore market, especially big banks. We also see supportive liquidity conditions for Local Government Financing Vehicles (LGFVs) in the near term, albeit amid growing concerns about the ability of local governments to support them. Offshore China portfolio positioning:
Onshore China bond positioning:
Multi-Asset teamThe world is a highly unusual place today, with this economic cycle different for three reasons: policymakers are seeking to avoid stimulating the economy via the property sector; strict Covid containment measures continue to dampen consumption; and major central banks are tightening policy aggressively to fight inflation, leading to slower global growth. Whereas in China, where inflation is not an issue, economic growth is in the early stages of recovery after authorities started easing policy this year. Government bond yields are near historic lows, so not outright cheap. But equity risk premia and offshore credit spreads remain attractive. As a result, although Chinese growth is likely to see sequential improvement in the second half of this year, the strength of the recovery will be weaker than in previous cycles. Monetary policy is likely to remain loose, with credit growth driven more by government than the property sector. As policymakers seek to balance short-term growth with long-term structural reform goals, we remain long China onshore equity and China duration; cautious on China credit; and we recommend hedging currency risk when investing in China. In a normal cycle, an early recovery phase is the time to invest in Chinese equity. However, in this cycle we think the recovery will be highly uneven and asset allocators need to pay close attention to potential tail-risk from Covid lockdowns and the property sector. Active stock selection is key. In a normal cycle, as growth recovery takes hold, the bulk of government bond outperformance should be behind us. However, in this cycle the weak recovery suggests China's central bank is likely to keep liquidity conditions loose, meaning bond yields will remain lower for longer. In a normal cycle, credit should rally with equities. However, in this cycle we are not confident that policymakers will backstop troubled property developers, which means high-yield credit will remain distressed. Of course, that does not preclude interesting opportunities in investment grade credit. For currencies, we think CNY can stay resilient on a trade-weighted basis, but weakening external demand and a hawkish US Federal Reserve will put downward pressure on CNY against USD. For global investors, hedging CNY risk is not a bad idea as hedging costs are at their lowest for five years.
Author: Nicholas Yeo, Head Of China Equities; |
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Funds operated by this manager: Aberdeen Standard Actively Hedged International Equities Fund, Aberdeen Standard Asian Opportunities Fund, Aberdeen Standard Australian Small Companies Fund, Aberdeen Standard Emerging Opportunities Fund, Aberdeen Standard Ex-20 Australian Equities Fund (Class A), Aberdeen Standard Focused Sustainable Australian Equity Fund, Aberdeen Standard Fully Hedged International Equities Fund, Aberdeen Standard Global Absolute Return Strategies Fund, Aberdeen Standard Global Corporate Bond Fund, Aberdeen Standard International Equity Fund , Aberdeen Standard Life Absolute Return Global Bond Strategies Fund, Aberdeen Standard Multi Asset Real Return Fund, Aberdeen Standard Multi-Asset Income Fund 1 Bloomberg, 26 August 2022 |
23 Sep 2022 - Hedge Clippings |23 September 2022
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Hedge Clippings | Friday, 23 September 2022 Last Friday RBA Governor Philip Lowe appeared before the House of Representatives Standing Committee on Economics, in part to report, and in part to rebuff suggestions from some quarters that he should resign on account of misjudging the outlook for inflation, and thus his 2021 expectations for interest rates not to rise before 2024. As he pointed out in his opening statement, much has changed since he last fronted the Committee in February, just seven months ago:
Since his 2021 statement rates have risen five times. Lowe could have used the old, supposed quote from various people, including John Maynard Keynes and Winston Churchill and others, to the effect that "when the information changes, he changes his conclusions". This week he could also use the fact that Australia is just one of 90 countries to have increased interest rates this year as they fight the "scourge" of inflation - even if their economies succumb to a recession in the process. To quote from his prepared statement of last week:
This week the US Fed increased rates by 0.75%. In the UK the Bank of England, facing inflation of 10%, upped their rates by 0.50%, the 6th increase this year, while Norway, Sweden (+1.0%), Switzerland (+0.75% and now in positive territory for the first time in eight years), plus South Africa, Indonesia, Vietnam, Mongolia, Taiwan, and the Philippines, all increased rates. Going against the trend, Turkey dropped theirs by 1%, but that was from 13 to 12% in spite of inflation running at its highest for 24 years, and, not surprisingly, in the face of "a loss of momentum in economic activity." Japan's central bank also stood out by not increasing rates, but intervening in markets to support the tumbling Yen. Also swimming against the tide were China and Russia, both of which have their own specific economic and other issues to deal with, and which are also impacting the rest of the world. China's woes include an ongoing slowdown resulting from COVID restrictions, even as it seems the rest of the world have or are emerging from the worst effects of the pandemic which is generally accepted by all except the Chinese government to have originated in Wuhan, and which is approaching a three year anniversary. According to Noel Quinn, the CEO of HSBC Holdings Plc., the correction to China's commercial real estate market was "massive, faster and more decisive than expected", and may have at least another two years to run. Also supporting Lowe's explanation of changing conclusions with the change in available information would surely be Russia's invasion of Ukraine, which caught politicians across the western world, and Europe's economy, and energy supplies in particular, off guard. Just to add to the uncertainty, Putin upped the ante this week when facing defeat at the hands of a supposedly weaker, but fully committed opponent, losing face by calling up 300,000 reservists, and threatening the use of nuclear weapons, which would presumably escalate the war, rather than end it. Australia's economy may or may not escape a recession, but along with the rest of the world's central bankers, Philip Lowe is clear about his priority: The longer term threat from inflation is greater than the shorter term risk of a recession. Which takes us back to Paul Keating's quote of the "recession we had to have". News & Insights The Long and The Short: The 8 minutes that really mattered | Kardinia Capital Reporting season better than many feared | Glenmore Asset Management Outlook Snapshot | Cyan Investment Management |
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August 2022 Performance News Bennelong Long Short Equity Fund |
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