The past six months have been golden for investors, with everything from equities to gold and even Bitcoin enjoying stellar runs. And if risk assets are not your bag, then there have been juicy yields on offer across a range of cash and fixed-income asset classes. 

Animal spirits woke from their slumber in late October 2023 when the Fed effectively claimed victory in the fight against inflation. Markets have been led to believe that rate cuts are a forgone conclusion in the year ahead, and participants have been piling into risk assets accordingly. 

Christopher Joye, portfolio manager and chief investment officer at Coolabah Capital Investments, says that markets have become so complacent that they appear to be completely ignoring a growing set of data suggesting that the path forward might not be smooth.

Most notably, the resurgent inflation data coming out of the US is causing interest rate cut expectations to be dialled back and kicked down the road. When asked what he thought investors were getting wrong about markets today, Joye was quick to call the dichotomy between what the economy is suggesting needs to happen with interest rates and market expectations.

“If this strong data keeps coming through then hold onto your hats because the world is not priced for this risk. Make no mistake, there is no margin for error in listed equities. There is no margin for error in venture capital, private equity, zero in crypto, in commercial real estate, nothing,” Joye argued.

Tune in to the latest episode of the Rules of Investing, where Livewire’s James Marlay ask Joye about his views on the outlook for both the US and Australian economies, the three risks he is watching and where he sees value in Australian residential real estate.

Quality growth stocks, those with fortress balance sheets, impressive moats, structural tailwinds and top-notch management teams, have had a stellar run recently. Take Goodman Group (ASX: GMG) for example, which has risen 66% over the past year. Or Megaport (ASX: MP1), up over 252% in 12 months alone. 

If you're like this anonymous writer, you've probably started to ponder whether it's time to trim some of your winning positions and take some profits. 

And according to TMS Capital's Ben Clark, we may have just reached that point. 

"A lot of investors are trying to chase a very small number of stocks in Australia because of the AI trade," he says.  "And I'd just be a bit wary about that because although those companies absolutely should benefit, it's just how quickly those benefits flow through and whether the market has just got a bit ahead of itself in terms of the benefits that will come through in the medium term." 

In this episode of The Rules of Investing, Clark sits down with Livewire's Ally Selby for a conversation on all things artificial intelligence, growth investing and holy grail stocks. 

He shares where he is putting some of the firm's dry powder to work, a few reasons why investors should feel optimistic about the outlook for markets, and whether he would be buying the AI behemoths both globally and locally today despite their stellar runs over the last six months. 

Plus, Clark shares why the tables may be turning once again for out-of-love growth darling CSL (ASX: CSL). 

Note: This episode was recorded on Tuesday 9 April 2024. 

Timecodes: 

• 0:00 - Intro 
• 1:54 - Ben Clark's outlook for the remainder of 2024 
• 4:17 - Record cash holdings in the US and what this means for markets 
• 6:51 - Why Aussie investors are also holding a lot of cash 
• 7:39 - The most common question Ben Clark is hearing from clients 
• 10:01 - The takeaways from Ben's trip to SXSW in the US
• 12:13 - Learnings from a private meeting with a Google executive 
• 15:11 - The outlook for Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOGL)
• 16:25 - Can the momentum continue for global AI winners like Nvidia (NASDAQ: NVDA) 
• 19:17 - The ASX-listed stocks that directly benefit from AI 
• 23:17 - Why some of these stocks' share prices may have gotten ahead of themselves
• 24:30 - Holy grail stocks - and why Brickworks (ASX: BKW), WiseTech (ASX: WTC), REA Group (ASX: REA) and CSL (ASX: CSL) make the cut 
• 29:32 - Where Ben Clark has started to take profits 
• 31:28 - And where he is putting that cash to work 
• 36:11 - One thing the market is getting wrong today 
• 38:03 - Lessons for growth investors from the 2022 bear market 
• 42:59 - A stock to buy and hold for the next five years

If there is one theme that has taken the world by storm in 2024, it's Artificial Intelligence or AI. 

Until very recently, this week's guest was a bit of a sceptic, but a recent trip to the US has seen him come back a changed man.

In this episode, we'll be sitting down with investment adviser Ben Clark of TMS Capital. We'll be learning about the wonderful world of growth investments, the key technological innovations that have him excited and his top holy grail stocks. 

Here's a sneak peek of what you can expect... 

If there is any one investment product that has experienced a true boom over the last 10 years, it is exchange-traded funds (ETFs) and exchange-traded products (ETPs) more broadly. 

The number of listed products has increased by 17.5 times in Australia during the last decade alone. More than 300 products are now listed across the ASX and CBOE exchanges and two million Australians have at least one ETF in their portfolio.

And, as if you need more proof of the growth of ETPs, 2024 marked the first time that inflows outpaced those going into unlisted managed funds. 

So if we've seen this growth over the last decade, what could the next 10 years hold?

In this episode of The Rules of Investing, we put this and other questions to Tamara Haban-Beer Stats, Director and ETF/Index Investments Specialist at BlackRock Australia. BlackRock is the world's largest asset manager and its ETF arm iShares runs 49 ETPs in the Australian market.

In this episode, Tamara also discusses the key mega forces that BlackRock believes could drive markets over the long run, where they are overweight in portfolios and the asset classes they believe could see the biggest growth within ETPs over the coming years.

Note: This episode was recorded on Tuesday 19 March 2024.

Timestamps

• 0:00 - Intro
• 2:21 - BlackRock's outlook for the next 12 months
• 4:06 - What the new investing regime means for ETF investors
• 6:17 - The five "mega forces" of investing 
• 9:13 - Currency impacts on ETF returns
• 10:27 - Will the Australian Dollar rebound in late 2024?
• 13:45 - Should investors consider hedged ETFs?
• 14:55 - Opportunities in Japan and the US
• 16:47 - Why the AI boom won't be early 2000 all over again
• 18:02 - The explosion of interest and uptake in ETFs
• 21:31 - The asset class that could gain the lion's share of growth in the future
• 23:17 - Other interesting innovations in the global ETF market
• 25:06 - Which products are seeing the most inflows and outflows in 2024?
• 27:31 - The Rules of Investing's regular questions (with an ETF twist)

Warryn Robertson, portfolio manager and analyst at Lazard Asset management, understands the nuances of infrastructure assets like few others in the market. His approach is to find monopoly assets with inflation protected revenues, high margins and reasonable leverage then buy them at attractive prices. 

Of the 400 listed infrastructure stocks globally only 160 have passed the four filters and typically Lazard’s Global Listed Infrastructure Fund will own just 25 to 30 of those companies. Given the attractive nature of infrastructure assets it is unsurprising that sovereign wealth funds and private equity firms are also circling these assets. Robertson estimates that of the 160 stocks that meet his criteria 25 have been taken private and delisted. 

The situation in Australia is even more challenging, of the 14 infrastructure and utility stocks on the ASX valued at more than $1 billion just four meet Warren’s criteria as being ‘preferred infrastructure’.

The good news is that Robertson is a firm believer and concentrating your capital into your best ideas. In this episode of the Rules of Investing, Warryn Robertson reviews the recent performance of that asset class through an inflationary environment, explains why US utilities look vulnerable and shares what he believes are the best opportunities in infrastructure. 

Robertson also reveals what he regards as the top infrastructure stock on the ASX and an infrastructure company with an absolutely stunning earnings outlook.

"Living Legend", "One of a kind", and "Diamond in the Rough are not terms usually bandied about when describing economists! But these are just a few of the hundreds of messages of support and appreciation that flooded a recent social media post recognising the 40-year tenure Dr Shane Oliver to AMP.

Shane has dedicated his years to educating Australians on all matters of the economy. His style tends to be glass half full, and you'll rarely hear him pushing doomsday forecasts. He also possesses an uncanny ability to make complex matters easy to understand and is usually armed with some cracking charts to drive home his points.

In this episode of the Rules of Investing, Shane explains why central banks are close to pulling off Mission Impossible and avoiding recession. He believes interest rates have peaked and will drift lower as inflation returns to the RBA's target range. The episode also touches on a range of issues, including population growth, housing affordability and Australia's exposure to the Chinese economy. 

 

If you’re looking for the future blue chips of the ASX then Washington H Soul Pattinson might be worth a closer look. The company has been around for more than a century, has never missed a dividend payment but, for the most part, has flown under investor radars.

That is starting to change following the tie up with Milton Corporation in 2021, which has helped to propel Soul Patts’s market cap over $12 bn and into the S&P/ASX 50. Soul Patts now sits alongside popular names including Mineral Resources, Car Group, ASX Ltd and Ramsay Healthcare. 

Blue chip stocks are known to be large, reliable, profitable and consistent dividend payers. Soul Patts ticks most of these boxes with the exception of size perhaps.

The merger with Milton brought an experienced investment team led by CEO and CIO Brendan O’Dea, 30,000 new shareholders and a $3.7bn large cap portfolio.

O’Dea is now the Chief Investment Officer at Soul Patts and says the merger gives Soul Patts the platform required to build the next generation of investments that will sustain Soul Patts enviable track record of shareholder returns.

“There’s a real desire on our part to seed the strategic assets of the future and a lot of that is going to come out of that private portfolio.”

In this episode of The Rules of Investing, Brendan O’Dea takes Livewire’s James Marlay on a tour of the Soul Patts investment portfolio covering their large cap, emerging and strategic equity portfolios.

 O’Dea also shares Soul Patts’ unique approach to capital allocation, the asset classes commanding their attention and why you should expect to see more big strategic investments in the years ahead.

The structural forces that saw growth investing rise to the top after the GFC remain. Covid created a blip, but the world is returning to slow growth, low inflation and lower interest rates. That's the perspective of Jason Orthman, the Deputy Chief Investment Officer of Brisbane-based Hyperion Asset Management. 

Orthman says that neither you, me, nor our grandchildren are likely to experience an environment like 2022, where rapid interest rate hikes rocked long-duration assets such as government bonds and growth equities. 

"2022 was an incredibly unusual period. We've looked at markets over the last 250 years, and you haven't seen interest rates at the long end move quickly to that level over 250 years of data. We believe it's a one-in-250-year event," says Orthman.

Structural forces, including ageing populations and the rise of automation, will continue to create a disinflationary and low-growth world in the decades to come. This backdrop means that those rare companies that can grow at rates well ahead of GDP can provide investors with exceptional returns. 

Orthman and the Hyperion team have a disciplined approach to finding these rare gems, starting with twelve structural growth trends, such as productivity, the shift towards artificial intelligence (AI), and banking and payments. These parts of the economy are likely to grow and present fertile ground for finding future blue-chip companies. 

In this episode of the Rules of Investing, Ortham speaks with Livewire's James Marlay about Hyperion's approach to growth investing, the wild ride of 2022 and the long-term opportunities the firm has identified. 

Orthman also shares what he describes as 'one of the most important investments' the firm has ever made, what investors are missing about the Tesla story and two companies he believes are poised for significant revenue growth over the next decade.

Each year, Barron's releases a list of Australia's Top 100 Financial Advisers. Pitcher Partners' Charlie Viola and Lipman and Burgon Partners' Paul Burgon have featured high on this list over the years, and both ranked in the top 10 in 2023.

As part of Livewire's Outlook Series for 2024, Livewire's James Marlay hosted an in-depth panel discussion exploring how these two investing gurus are allocating capital on behalf of their clients in 2024. Whilst there is no 'one size fits all' when it comes to investing, there are nuggets of insight from this session that can help all investors.

Click here to access the charts discussed in this episode and a summary of the discussion 

Timecodes

• 0:00 - Introducing the experts
• 0:49 - Charlie Viola’s top three factors influencing asset allocation in 2024
• 3:20 - Paul Burgon’s top three factors influencing asset allocation in 2024
• 6:15 - Asset classes where Paul and Charlie are overweight or underweight
• 9:53 - Why Private Markets will play a bigger role in portfolios in 2024 and beyond
• 12:40 - Charlie Viola’s Asset Allocation framework for 2024
• 16:33 - Paul’s Strategic and Tactical Asset Allocation frameworks for 2024
• 22:26 - How these advisers are innovating in 2024
• 25:50 - Four investing traps to avoid in 2024

Two years ago, on a trip to Perth, Yarra Capita’s Dion Hershan was pitched the case for lithium stocks by his Uber driver. Hershan says it was a cliche moment and a classic example of a ‘ringing the bell’ sign. On the flip side, there are moments when deciding to invest causes your stomach to churn and your hands to quiver.

“Some of the best ideas I’ve had in my career were when my stomach churned and my hands trembled when I put the trade on. That’s often a good lead indicator.”

Recent investments in fallen angel ResMed (ASX: RMD) and an overweight position in the beaten down REITs sector are two examples Hershan provides of how Yarra is taking long-term counter-consensus thinking.

This counter-consensus thinking also applies to the companies Hershan and his team are cautious about, which include large parts of the ASX20, including resources and banks. Hershan says that while these companies may not fall out of the top 20, their best days are likely behind them.

In this episode of the Rules of Investing, Hershan talks about the lessons from working inside the most successful global hedge fund, why he is cautious about the outlook for blue chips and the companies he thinks represent the best long-term opportunities for the slow grind that lies ahead.

 

Timestamps

• 0:00 - Introduction
• 3:06 - How Dion caught the investing bug
• 4:40 - Lessons from working at Citadel
• 8:35 - Why macro matters for Australian equity investors
• 11:08 - The raging debate taking place at Yarra Capital
• 14:30 - How much pain will consumers feel in 2024
• 17:29 - Why you should be complacent about blue chip stocks
• 22:05 - The best opportunities Yarra is finding on the ASX
• 24:57 - A fallen angel that Yarra thinks can rebound
• 26:52 - The thesis for being overweight REITs
• 36:00 - What investors are getting wrong in markets today
• 37:15 - Lessons from an early win
• 38:32 - Two stocks Dion would be happy to back if the market shut for 5 years

Related Articles

 

https://www.livewiremarkets.com/wires/five-themes-on-our-shopping-list 

 

https://www.livewiremarkets.com/wires/avoiding-the-blue-chips-heading-for-small-cap-status

The penny has dropped and thanks to a three-letter word from the Federal Reserve's recent interest rate decision ("any"), small caps both in the US and in Australia have started to rocket out of a long slumber. For most of the last 18 months, small cap performance at an index level has been smashed thanks to the soaring cost of capital. But now that markets have called central banks' bluff, we're entering what Ben Griffiths of Eley Griffiths Group calls a "pause rally" - the kind of rally that has a lot of cash looking for a new home.

"I'm not for a second suggesting that the lunatics are out of the asylum but there has been some stability and sentiment is such that you can sketch out a constructive path for equities. There's a buoyant time ahead for us," Griffiths said.

Another worthwhile indicator of the return of risk is the IPO market - and as Griffiths knows all too well, the phone calls have dried up considerably. And while the phone is not ringing off the hook yet, he does see some signs that listing activity is itching for a rebound.

"There were a number of IPOs that were slated for transacting and listing before Christmas that have now been pushed into March. These will be extra well sought after in March - or certainly pre-June 2024," he said. 

In this, our second last episode of The Rules of Investing for 2023, James Marlay sits down with Griffiths for an extended conversation about the smaller end of the market. Hear about some of the companies that stood out from the recent AGM season, how Griffiths is investing in light of a "higher for longer" rate environment, and why he's dipping his toes into a well-known company that fell from darling to dog.

Timecodes:

• 0:00 - Intro
• 1:15 - Three macro signals Ben pays attention to - and what these are saying about the markets
• 4:45 - Is risk back and is the "pause rally" underway?
• 8:44 - Was October 30th 2023 the day the market declared the war on inflation over?
• 10:16 - What are you hearing about the appetite for more ASX IPOs?
• 14:00 - What are the drivers of the divergence between large cap and small cap performance - and when will it turn?
• 18:00 - The ASX companies which stood out from the November AGM season - Breville Group (ASX: BRG), Boral (ASX: BLD), Ridley Corporation (ASX: RIC)
• 19:16 - Portfolio construction and stock picks for a "higher for longer" interest rate environment - Monadelphous (ASX: MND), ARB Corporation (ASX: ARB), Capricorn Metals (ASX: CMM), Genesis Minerals (ASX: GMD), Karoon Energy (ASX: KAR)
• 21:53 - Stocks where margins may have not bottomed out yet - Auckland International Airport (ASX: AIA) and Worley (ASX: WOR)
• 22:20 - Portfolio construction for the new Eley Griffiths Group mid-cap fund: Audinate (ASX: AD8), Temple and Webster (ASX: TPW), Codan (ASX: CDA)
• 23:06 - A closer look at Boral and the impact of new CEO Vik Bansal
• 26:05 - A closer look at one unloved area of the market: REITs
• 27:52 - Consumer finance stocks have been the subject of investor "angst": Judo Bank (ASX: JDO), Latitude Financial (ASX: LFS), Pepper Money (ASX: PPM), Liberty Financial (ASX: LFG)
• 29:12 - What would it take for you to turn more positive on these smashed sectors?
• 31:48 - Why Eley Griffiths Group is launching a new mid-cap fund now
• 34:34 - Some of the mid-cap fund's early core holdings: CAR Group (ASX: CAR), GQG Partners (ASX: GQG), Genesis Minerals, Boral, Auckland International Airport, Worley
• 35:37 - The Rules of Investing's three regular questions