Macro
Alex Cowie

One of the most engaging parts of my role at Livewire is working with Australian fund managers to discuss their views and bring you great content. With over 400 managers now contributing to the platform, overseeing the content can feel like being at the epicentre of the market. 

So with markets in turmoil, we recently asked some of our partnering managers to isolate a single view that would be of most value to readers in 2019. We published their responses through December. In case you missed out on this popular series, I’ve summarised the 16 responses for you, listing them by category. 

Read on for Steve Johnson’s ‘Recession proof, property proof, ASX portfolio’, Phillip Hofflin on the lessons from history on property declines, Steve Black from Pengana listing the real winners from the Royal Commission, and much more. I hope you find them useful and wish you a prosperous 2019. 

Stock ideas

Steve Johnson from Forager Funds told readers in ‘A recession proof, property proof, ASX portfolio’ to: “channel your inner Braveheart and hold tight on your defences” as we move into 2019.

He suggests a 12-stock portfolio shortlisted from the ASX50, with a fairly reasonable looking average forward PE of 19.7, and concludes that it could generate 7-8% p.a. over a long period of timein a way that lets you sleep at night… for 2019, I’m tipping that will be no mean feat’.

The Banking Royal Commission was a dominant theme last year, and the ongoing negative fallout will be discussed for some time. However Steve Black from Pengana Capital argues here that ‘Not everyone is a loser after the royal commission’, nominating some listed independent platform providers, fund managers, and a corporate trustee that have benefitted from the change of guard. 

Banking is not the only sector under the microscope of a Royal Commission, and aged care is next in line. In this wire, Shane Fitzgerald from Monash Investors Limited discusses the potential impacts, making his view clear in his headline: ‘Why we are shorting aged care stocks’

Although Origin sits in the ASX20, it seems to have fallen off the radar for some investors. Airlie Funds’ Matt Williams presented an investment case in ‘5 reasons to own Origin Energy’ that made Origin sound like an overlooked gem. He wrote that the ‘valuation is compelling, trading at ~10x FY19 P/E. On our estimates in the FY20, Origin could comfortably fund a 60cps dividend out of free cashflow whilst still investing in its utility business. This would provide shareholders with a dividend yield of almost 9% at the current share price’. 

On the topic of compelling valuations, Mary Manning from Ellerston shone the spotlight on the ‘Cracking valuations in Asian tech’. After falling dramatically through most of last year, the MSCI China Information Technology index has held its ground in the last few months.

Mary writes that “the Asian technology sector, particularly Chinese tech stocks, have become oversold. We see good buying opportunities in Tencent, Alibaba, Baidu, Largan and Sunny Optical for the rest of 2018 and the first quarter of 2019”. 

From all the stocks in Firetrail’s investment universe, Blake Henricks nominated just one for this series. He provides reasons here why the team believes the stock is “one of the most compelling opportunities in the Australian equity market today” and why “it will be a future winner for our investors over the medium term”.

Catherine Allfrey from WaveStone Capital offers two stock ideas in her wire: ‘Diversification is key in volatile markets’, that are ‘likely to grow faster than the market but also offer a level of diversification to different market conditions’. These include one offering defensive growth, and the other cyclical leverage.

Big picture ideas

Residential property declines: The lessons from history’, from Dr Philipp Hofflin at Lazard Asset Management, was one of the most popular wires over the last few months. Phillip provides a sobering roadmap of what happens when property prices fall, based on recent real-life examples overseas. This is a big read, and more than worth making the time for.

In this wire from Dane Roberts at Regal Funds Management ‘Game on or game over’, Dane examines the different perspectives on the highly volatile equity markets, saying "The bulls will claim its ‘Game On’ with a white-hot US economy, relatively low-interest rates, a solid earnings season and low unemployment rates; The bears will talk trade, debt levels and the reversal of QE as reasons why its ‘Game Over’ for this ageing bull market." 

In the ‘Trillion-dollar study credit managers don’t want you to read’, Charlie Jamieson at JCB lined corporate bonds up in the sights as being an asset class to stay well clear of. He wrote that: “corporate bonds do NOT defend and protect against equity allocations but magnify the equity outcomes”. 

Well ahead of the market, Geoff Wood at Morphic Asset Management made the case in ‘Fed’s Secret Santa: A gift for markets’ that we may be up for a period of Fed pausing; now a consensus view. He wrote that: “Well, if we find ourselves staring at weak growth and ISM prints in 2019 and the Fed moving to pause, then some lessons from the past show that things may not turn out as bad as they feel”. 

Also looking at monetary policy, Ted Alexander at Walsh and Company is more focused on the current mismatch of monetary policy between the US and Australia. He asks: ‘Will the RBA capitulate and raise rates when the dollar hits 50c’, and suggests we should ‘expect some spice and excitement from monetary policy through 2019’. 

Themes

Yield hunters often forget about AREITs, but Pete Morrissey  at APN Property makes a compelling case for them as a must have in the income portfolio in ‘Rest easy and think of the yield’. He summarises to say: “This Christmas, rest easy, put your feet up, and when you get frustrated by the crowds at your local shopping centre, just think of the yield. Right now, it happens to be one of the more reliable, predictable things in finance”. 

Looking at a turbulent market that could “present many opportunities for investors”, Matthew Haupt at Wilson Asset Management short-lists ‘3 key market drivers to watch’ in 2019, namely government intervention, trade wars, and oil. 

Five very lean years for resource companies led to brutal rationalization of the sector. Highly experienced resources investor, David Whitten at Janus Henderson, writes in ‘The resource sector’s purple patch’ that leading companies are now in the unusual position of enjoying ‘low financial leverage, good growth prospects, high dividend yields and share buybacks’

Jeremy Gibson from Munro Partners examines a fascinating area of research in: ‘The future of DNA technology’, in looking at DNA sequencing systems, by example of market leader, Illumina, which he says ‘recently reported that 90% of all sequencing performed has been generated on Illumina technology’.

 

 

 



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