Nearly 20 years after the last technology bubble, we’re in funny season again, and you don’t need to be an economics PhD to see it. Crazy valuations are being ascribed to stocks that have never made a dollar, in the hope they’ll become like Amazon one day. Think loss making... Show More
It has been an incredibly ugly period for funds management in recent months, albeit a very informative one for their investors. Unfortunately, the market environment is transitioning, and in response many fund managers have – simply put – been found wanting. It is exactly this type of period when manager... Show More
The market environment has changed. Yet most advisers’ portfolios have not. They may want to adapt fast if they want their clients better suited to the new market environment - assuming they’re not going to unduly suffer more weak returns going forward as they did in 2018. Show More
Almost universally weak performance of fund managers over the last two months has left many advisers and their investors in shocked disbelief, or hiding under their sheets unwisely hoping for a change in market conditions. It has been almost impossible for those with active manager portfolios to avoid at least... Show More
The recent equity market rally in response to dovish FED language again highlights how dependent equity markets are on government stimulus and sugar hits. Show More
Following the falls in equity markets globally across October and November, there’s been a marked increase in bearish commentary from fund manager, analysts, and various other commentators. But as the saying goes, there’s two sides to every trade, and this is no exception. To balance out the panicked shouts, there’ve... Show More
There is (arguably of course) a bubble in nearly every mainstream asset class. A bubble in debt markets, a bubble in property, a bubble in equity, a bubble in private assets, and a bubble in the way portfolios are managed. This is an artificially created result of easy monetary and... Show More
Yes, your investment portfolio is quite realistically stuffed. At least in terms of being best aligned with what you need or want. At the very least, the investment portfolio you’re in is almost certainly less ideal than it could be, if not imprudent for the world we live in. Show More
Thank you for your generous comments Gents. Much appreciated.
M&A action is happening, and is one great way to diversify portfolios that is actually working if conducted by an experienced team. In contrast, many overly popular active management and alternative strategies are struggling to deliver meaningful results. Good on you Luke for continuing to deliver great results for Harvest Lane's investors.
On Ready. Set. Go. -
Great summary Jonathan. Telling the truth might get one locked up these days, albeit I hope that doesn't happen to you given your fantastic eclectic news summaries!
Hi Nicholas . When this (long overdue) market cycle ends, I expect we'll find nearly everyone has been swimming naked - from your large institutional investors to most retail investors! After all, isn't it normal to have 70% in equities of some sort or another, with much of it very expensive versus history. It requires several unusual qualities not to have been sucked in to buying that which always seems to go up (at least so far), but which is quite obviously overvalued, risky and dependent purely on a (most probably grossly overestimated) belief in policy makers ability to prevent this cycle from ending...
How can one decide which of the loss making companies is better (relative) value! I'm not sure value is a primary focus of many of the "revenue growth" focussed punters buying the stock. If you want value, perhaps looks elsewhere.
Wouldn't it be nice if our central bank let the housing market continue its steady correction back towards a more reasonable valuation level, and stopped encouraging misallocation of capital, further speculation in property and housing bubbles. I wonder how much richer Australia could have been if government policy had have encouraged our capital into more productive purposes instead of property speculation. For starts, intergenerational inequity and populist movements might not be so prevalent. There is a general fallacy that central banks are omnipotent and drive the economy, but real economic growth is determined by so many other more important long term issues. And let's face it - if a mere 1.5% cash rate isn't low enough for you, what is!
Great article Stu
Good article Tracey, although I'm not sure that - having seen some very serious problems created or greatly exacerbated by (abnormal and easy monetary) policy being extended so long - we can count on future policy responses being effective at addressing the underlying issues! I wonder how long it will be until investors realise that policy is detrimentally affecting productive growth, is unsustainable, and that market returns have been pulled forward. The market appears to want to party while the path is superficially clear, with little regard to what the hangover will look like, what the dangers on the path are and what happens when the end of the path arrives. After all, good risk management hasn't matter much in the last few years and if anything has substantially detracted, so why should risk ever matter! (extrapolation is the current name of the game). More prudent investors might want to think about how diversified they really are e..g if - goodness gracious no - interest rates were to (unexpectedly) rise again for any reason...
Fantastic article. I wonder how much how this corporate banking executive - and others like him - have got paid over the years to destroy so many billions for others? And presumably contribute to poor corporate culture as well...
One has to wonder whether the huge premium of Sydney over Melbourne is justified, or whether it will continue to reduce as the multiple in Sydney comes off being stretched to the limit and as Melbourne benefits from greater population growth.
Let us hope the RBA don't try and create further distortions by 'rescuing' the current orderly correction of the massive Australian housing market bubble with further rate cuts. An official cash rate of just 1.5% is low enough! Australia needs to find more productive things to do than misallocating excessive capital to housing and creating great generational division by creating housing market bubbles and making housing unnecessarily expensive for the working generation.
Some Australian managers are finding the conditions highly prospective, unlike what you mention for the average Australian equity manager. For example, event driven market neutral manager Harvest Lane does not depend on the vagaries of central bankers 180 degree policy turns. They had a fantastic year in 2018 when all others wilted (they made double digit returns - including making money through the devastating October to December quarter) and are highly enthused by their future prospects. Furthermore, Harvest Lane don't earn any fees for themselves unless they make clients absolute returns > cash. Given the environment, having a genuinely aligned manager makes a lot of sense and I for one believe is worth supporting.
1-2% net yields in Sydney which are falling....This means a serious reality check when speculation is removed from the equation.
Excellent article Jonathan. Thank you.
Very interesting article. Thank you
On The Goldilocks Crop -
Outside a few large vehicles, the LIC space in Australia is very illiquid and hence can largely only be considered seriously by investors with very small funds under management. And as you highlight Dominic, the risks are generally under-appreciated currently by a market unwilling to spend sufficient money on due diligence and research (and which may not be justified in many cases given the illiquidity), and where manager and broker interests have too often been put first. Of course, the ease and accessibility is what makes this market attractive to investors, and made it so easy to forget about the potential hidden costs of investing this way.
Concise analysis Tony. Thanks for sharing.
Having predicted the market falls this year also, I can't wait to see the next article and how far Sydney needs to fall before it becomes fair value! The falls to fair value (or below) might be a lot bigger than most readers realise. There is good news in this though - hopefully Sydney will eventually become affordable to 'normal' hard-working productive people and their families so that they can live here 'adequately well' (poor building quality aside). Although the transition may be painful, these falls may finally kill the illogical love affair with Australian property and stop it being a huge source of wasted savings and capital - with the latter better directed elsewhere to support Australian productivity, innovation, investment, competitiveness and industry.
Hi John and Mark Thank you for your comments. Performance needs to consider the risks taken to get that performance and whether it is sustainable. PoorIy performing managers frequently don't improve unfortunately - a deep researched understanding of the individual manager is required to make this assessment. My livewire article "Making money through the cycle" provides investors (through their advisers) with some pointers and ideas to help them carefully select the better alternative managers. I am also happy to be contacted by your advisers, and may be able to help advisers improve their offering to their clients. I will also aim to write more on selecting fund managers for Livewire in due course given the strong importance and expressed interest in this area, both from yourselves and from others directly contacting me.
Hi Carlos Indeed, but hopefully this article provides investors (through their advisers) with some pointers and ideas to help them carefully select the better alternative managers, given what a valuable part of a portfolio they can be over time!
This is fantastic to see a fund manager's efforts to publicly hold both AMP and the ASX accountable, and to consider the potential broader adverse impacts. Thank you Hamish.
Spot on Jon. There is no point betting very heavily on whether an expensive equity market goes up or not from here if you don't have to....There are other ways to make more resilient consistent returns with less downside risk which are much better aligned with most people's preferences (less likely to lose large amounts of money!)
Matthew, while you alone may have "no idea where prices will go in the short term" and "it’s impossible to forecast where things go next" it remains blatantly obvious that Sydney and Melbourne property have a very high chance of falling again in the short term, just as it was in the last few months.... Sorry, but that really is (once again) a very possible forecast to make!
Often promulgated is the notion that one can only buy equities or bonds or cash or some mixture of these, as if there are no other choices. Good alternative managers are an underappreciated option for investors, albeit to be effective one needs aligned managers who have genuine resilience to the downside, with an ability to still actually make good returns. Indeed, alternatives are routinely being massively under-utilised - due in part to a lack of skills and expertise on the part of allocators to choose the good ones - along with an unwillingness to be different (we might define this as putting yourself on the line for the sake of your clients rather than backing mainstream dogma). Too much rearview mirror investing (e.g. confusing a bull market with a notion that equities or properties or bonds or whatever always go up) also doesn't help...
Rents - already great relative value for renters - are indeed falling in many places! Whether it falls 40% or 10%, housing appears a waste of capital.. From an economic perspective, what a shame Australian house prices have become so inflated at the expense of good productive use of our capital.
Nice article Hugh
The 'core' part is risky and suboptimal. It is cheaper for a reason.