Back to Business 2022

This past Tuesday the 8^th of February we held our annual Back to business day. It was great to catch up face to face with industry colleagues and have some valuable input to start the year.  Following are some tidbits from the day, and this is the first of two blogs on the day. Firstly on to some of the investment presentations that we had the pleasure of participating in.    

Perpetual:

First up we had Perpetual, with Tony Harte organizing virtual presentations by Matt Sherwood and Michael O’Dea which as always were excellent. Matt Sherwood is Head of Investment strategy, Multi Asset holding a Bachelor of Business as well as Masters of Economics and has done extensive lecturing stints both in Australia and the U.S.  Matt is a published author, and he has more than 26 years of industry experience.  Some of the key points   : 

• Beginning of Fiscal and Monetary support 
• Recessionary risk in 2023
• Bearish on duration
• Two views of what drove returns post Covid: Bulls take the view that earnings growth drove returns; and
• Bears case, which is what Matt supports with a view that this has been primarily driven by Central bank stimulus.  

Michael O’Dea is head of Multi Asset at Perpetual and has a Bachelor of Bus. (Ec, Fin) He has more than 22 years of investment industry experience including 7 at Perpetual, and is a Vincent Fairfax fellow.   He spoke about embracing risk as there is more volatility ahead for bond holders.  The concept he discussed was TINA Trade, which stands for There Is No Alternative (to shares)

The below / above slide indicates that Perpetual, relative to its competitors has been able to provide solid returns with the least amount of risk.

Where not one of their competitors has a higher risk adjusted return.  They are not overpaying for investments.  Expectation is that higher dividends will assist late in 22 and beyond.  All this in an environment where there has been some crazy events such as buying virtual property in the meta verse growing at a rapid rate. 

Bell Potter :

Presentation by Geoff Beeston, covering off Smart car technology trends and the future, with the 3 key points being:

• In the coming years the Technology content of smart cars will be ½ of its total value.
• There are 3 Key themes emerging:
• Autonomous driving – this will bring about different business models enhanced by autonomous driving, including hands free and entertainment, as well as other areas; Autonomous driving is going through major improvements around electronic/electric components, with enhanced algorithms, and more centralization in areas like computational aspects. Now cars are becoming more like tech devices.
• Barriers to entry and risks – obviously, price is a main factor here. This is currently being offset by rising inflation, and importantly oil cost pressures.  Vehicle range, and access to charging are also issues.  For manufacturers there are a few options they can consider in terms of manufacture vs establishing partnerships, and generally in this area barriers are becoming less and less stringent.  They still exist, especially for traditional auto makers, however those with strong brand presence, and infrastructure including sales/service etc should find the barriers less restrictive than others.
• Growth from China  – it is expected that not only due to population, but some support from governments, and the overall greater acceptance of technology in China that they are likely to lead the way in acceptance and delivery of smart cars.  Vision in China that has supported this sector has focused on narrowing the safety restrictions and improving the infrastructure. 

Janus Henderson:

Daniel Simpson from Janus Henderson provided us an overview on the Tactical fund that we regularly recommend.  Some key points included:

• Cash rates will lift off but not blast off, and one of the drivers of this is that Australia does not have the same pace of momentum that the US does.
• The fund is positioned well with less duration than in recent times, and currently this is a duration of average 3 years.
• The fund has strengthened its ESG offering and in 2021 was involved in the largest ever green bond issue, one that was focused on affordable housing, an important area.

Australian Unity :

Dale Robertson of Australian Unity was kind enough to have Victor Windeyer – Portfolio manager for Future of Healthcare fund present for us.  Victor’s expertise and background is nothing short of astounding, with experience in Cochlear, Citigroup, amongst others including some smaller companies, and he also has a track record of invention, and patenting and commercializing products in the global healthcare space. The fund that was focused on during the presentation is a wholesale fund for sophisticated investors only at this stage, however some of the key demographics driving this fund are:

• The past 5 years has seen the gradual ageing of the population.
• Between 2000 – 2020 there were around 20,000 – 25,000 Australians per year achieving age 80.
• As from 2027 this number will rise to and above 60,000 – 70,000 per year.
• This will create quite the demand for health and health property related usage, which is one of the reasons we have begun to research and get further insight and details on this and other products of Australian unity.
• This is but one of many property and diverse investment offerings that Australian Unity has and the Future of Healthcare fund is backed also by a team of four key Managers and senior analysts, with an average length of investment/industry exposure of 21 years. The investment team is also supported by 8 Healthcare industry experts within the Australian Unity group, as well as a Fund Advisory Committee + Venture Capital and Private Equity Valuation Committee.   

Montgomery: 

Michael Gollagher of Montgomery Funds was able to get Garry Rollo one of the Portfolio Managers to present on the Small Companies fund, a recent addition to our approved list.  Gary holds a Master of Engineering with First class honours Aeronautical engineering from University of Glasgow.  He has more than 20 years experience with various Investment groups including JP Morgan.  The fund currently holds 46 stocks.  This fund is available on a wide number of platforms, and the key themes that Gary discussed were:

1. Montgomery takes a 3 bucket approach and has a focus on

• Defensive stable compounders that they anticipate will add single digit to double digit EPS growth, and;
• Tactical opportunity with a higher EPS growth anticipated; and
• Structural winners that take market share, and are part of global megatrends. The expectation here are for companies that can grow EPS more than 15% per annum

2. Cloud computing has been a real game changer for smaller companies. Gaining ground on their larger counterparts as small companies are more nimble, able to scale and disrupt more easily. 
3. Some of the bigger picture areas of greatest focus to Montgomery are:

• Global inflation, which is likely to outstrip Australia’s rate. Supply chains are still impacted, and with China reflating, it is hard to determine timeframes for “new normal”.  Some of the market impacts here are high debt levels causing constraints, as well as potential infrastructure spending surge in China. 
• Covid issues still remain, although the reliance on lockdowns is likely to dimmish. Stocks exposed to the re-opening theme should perform more favourably in the months ahead, even in light of possible further disruptions.

As you can see our morning was quite jam packed and we were extremely fortunate to gain these valuable insights from such knowledgeable and diverse industry participants. Next week, we will post further on the insights from other colleagues who presented on the day. 

Do let us know via email on: admin@p3fp.com.au  or phone 07 33789681 if you would like to discuss any or all of the above issues. 

Disclaimer: This is not specific investment advice, it is intended for general guidance only. Should you wish to get specific tailored advice please contact us for an initial, free, non-obligatory appointment with one of our university educated advisers.