After many years of limited activity on green bonds in Australia, we have seen a number of developments in this space recently, with the announcement of the Australian Government issuing a green bond. This reflects the substantial increase in activity in green bond development globally.
Joining the latest episode of the ESG in 10 podcast, is Tamar Hamlyn, portfolio manager at Ardea Investment Management, to take us through the developments in the green bond space in Australia and what this means for sovereign bond investors.
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Index Selector Links | 1 Year | 3 Year | 5 Year |
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6.76% |
8.70% |
5.59% |
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32.64% |
63.18% |
37.71% |
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4.60% |
2.01% |
1.46% |
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7.73% |
10.39% |
6.85% |
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8.97% |
9.73% |
6.54% |
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6.32% |
7.54% |
4.40% |
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13.05% |
11.19% |
7.09% |
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18.84% |
9.83% |
9.13% |
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16.92% |
7.81% |
6.79% |
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10.07% |
8.60% |
6.46% |
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2.39% |
-0.86% |
1.33% |
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6.11% |
2.78% |
3.68% |
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10.08% |
8.58% |
7.92% |
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7.10% |
6.13% |
5.68% |
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6.52% |
9.06% |
7.80% |
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4.94% |
6.47% |
5.08% |
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0.69% |
8.60% |
6.99% |
Hedge Clippings
22 Sep 2023 - Hedge Clippings | 22 September 2023
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Hedge Clippings | 22 September 2023 The US Federal Reserve put out their latest press release earlier this week, with a consistent message scattered through its 293 words: Inflation, mentioned 9 times, and 2 percent mentioned 4 times. With the current rate of inflation at 3.67% - up from 3.18% last month, although way down from 8.26% last year - there's still a long way to go. Maybe taming inflation is a bit like losing weight - (trust me, I know!) - the difficulty is the last part when things become really stubborn! That seemed to be the message Jerome Powell and his fellow FOMC members wanted to get through - that the road to 2% is not going to be easy, so don't expect any early move on interest rates - at least not down. The market meanwhile didn't like it and responded accordingly. Back home Australia's new RBA Governor Michele Bullock is unlikely to change her predecessor's approach when she chairs her first board meeting in a couple of weeks. Although she may use different words to Philip Lowe's "narrow road" rhetoric in the ensuing media statement, this is probably unlikely as well. As much as she'll want to stamp her individuality on the role, we also suspect that, having sat alongside her former colleague for so long, she'll be singing from the same song sheet. She's in a better position than the US, although there's still a long way to go. For a start, the RBA has a target band for inflation of 2-3%, whereas the US has a specific target of 2%. On the other hand, Australia, particularly with its dependence on imported oil, is more of a price taker than a price maker when it comes to inflation - particularly with an upcoming El Nino event now almost certain. There have been other hand-overs this week, each with their own twists and turns. Vanessa Hudson has taken over from Alan Joyce at Qantas and has taken no time to change his tune by apologising for past performances - something he was never known for. Not that Hudson had much choice. Meanwhile, Rupert Murdoch has finally stepped aside - well, sort of. We doubt if his influence will really wane until his eventual final exit, but even then, how different will Lachlan be, given his heritage and history? Enough of business and economics. We're heading into footy finals season - or in the case of the Wallabies, possibly into the quarter finals of the Rugby World Cup, taking on Wales early on Monday morning (AEST). They'll need to have a massive turnaround to do so, based on the rubbish they dished up last week-end. If they don't, there'll be a few heads that will no doubt roll at Rugby HQ - starting with Coach Jones and Chairman McLennan. In reality, rugby union in Australia already ranks far below the AFL, with 95,000 headed to the MCG for tonight's Preliminary Final. If the Wallabies can't make it past the RWC pool stage, interest in the game at international level will slip further - and possibly into insignificance. You'd have to be an optimist - and an early riser - to get up at 5 o'clock on Monday morning to tune in. Hedge Clippings generally fits both of those categories, but sadly on this occasion, while we'd never say never, isn't optimistic! News & Insights 10k Words | September 2023 | Equitable Investors Trip Insights: Europe | 4D Infrastructure August 2023 Performance News Bennelong Emerging Companies Fund Emit Capital Climate Finance Equity Fund |
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25 Sep 2023 - Performance Report: Bennelong Twenty20 Australian Equities Fund
[Current Manager Report if available]
25 Sep 2023 - Performance Report: Digital Asset Fund (Digital Opportunities Class)
[Current Manager Report if available]
25 Sep 2023 - Glenmore Asset Management - Market Commentary
Market Commentary - August Glenmore Asset Management September 2023 Globally equity markets in August were broadly weaker. In the US, the S&P 500 fell -1.8%, whilst the Nasdaq declined -2.2%. In the UK, the FTSE 100 fell -3.4%. Impacting investor sentiment was weaker than expected Chinese economic data (eg. Industrial output and credit growth), which saw commodity prices fall during the month. In Australia, the All Ordinaries Accumulation index fell -0.7%. Consumer discretionary was the top performing sector (driven by better than feared results), whilst utilities and staples (ie. more defensive sectors) underperformed. August saw the majority of listed companies report their results for the six months to 30 June, which provided an excellent health check on how these companies are trading in the current economic environment. In terms of the macro environment, data in August pointed to a continued reduction in inflationary pressures both in Australia and overseas. This in turn, should mean the bulk of heavy lifting in terms of interest rate rises needed to bring inflation down to targeted levels, has now been done. We viewed the August reporting season on the ASX as broadly better than had been feared. Many companies are seeing significant cost pressures (eg. wages, energy, rent, interest expense), however these issues were well known going into reporting season. Interestingly, the consumer discretionary sector performed well despite bearish expectations by investors. Whilst economic conditions remain challenging, it is important to remember the stock market is forward looking, hence we continue to believe the correct approach is invest in quality businesses and take a medium-term view, particularly given inflation data is now pointing to a clear decline from the very high levels of 6-12 months ago. Funds operated by this manager: |
22 Sep 2023 - Performance Report: Kardinia Long Short Fund
[Current Manager Report if available]
22 Sep 2023 - The good news? We're avoiding recession. The bad news? Living standards are going backwards
The good news? We're avoiding recession. The bad news? Living standards are going backwards Pendal September 2023 |
Australia is in a 'per-capita recession', which means economic growth is not keeping pace with population growth. TIM HEXT explains the problem and what's likely to happen next AUSTRALIA'S national accounts -- quarterly estimates of economic flows such as GDP, consumption, investment, income and saving -- land two months after the end of a quarter. Many therefore ignore them as old news. But they are the most comprehensive picture of the Australian economy from a macro and micro lens. So what does the latest data reveal about Australia at the end of June? In short, it is a very mixed picture. More than ever how you are feeling depends on where you sit. This ABS graph below shows the various contributions: First, the good news. We are avoiding a recession. GDP is 2.1% higher than a year ago, though slowing. It's been 0.4% for two quarters now and will likely end the year near 1.2% -- slightly higher than the RBA forecast of 0.9%. Inventories are unlikely to be a drag next quarter, but net trade should also stabilise. Now the bad news. We are clearly in a per-capita recession. In other words, this level of economic growth is not enough to keep pace with population growth. Which means the average person is going backwards in their standard of living. Our population grew by 0.7% in Q2, the economy only 0.4%. GDP per capita is now 0.3% lower than a year ago and 0.6% lower than six months ago. We are importing growth, not growing from within. Per-capita recession Why are we in a per-capita recession? We are seeing more hours worked as employment rises along with our population. But we are going backwards in GDP per hour worked -- down a staggering 2% in the quarter. This is one of the worst results since deregulation in the 1980s. Remember this is a volume measure -- not price or value. Productivity is going backwards. It has now gone nowhere since 2016. Put simply, the RBA is facing labour costs rising at 4% -- with stagnant or even negative productivity. Unless businesses wear the squeeze, inflation is not coming back too far below 4% for some time. Consumers tighten belts How is the consumer holding up in the face of rate rises? Household consumption barely grew in the June quarter at 0.1%. Services were up 0.2% but goods were flat. We are tightening our belts in discretionary spending, which fell 0.5%. This is consistent with a soft landing and is not disastrous, at least for now. Motor vehicle sales are still strong, so maybe cashed-up baby boomers are buying four-wheel drives for their lap of Australia. Pandemic stimulus savings are a thing of the past -- the savings rate has fallen to a cycle low of 3.2%. In the national accounts savings is a residual (income less consumption) and not directly measured -- so it is not always an accurate indicator. But it shows buffers are falling, albeit very differently across age groups. The growth we did have came through a rebound in export volumes and ongoing government investment. This continues a pre-pandemic theme and shows as a country our ongoing reliance on these two sectors, which is concerning. Likely we will commission another productivity report -- having ignored previous recommendations -- and kick the can down the road. The immigration lever In the near term, the RBA would be a little less comfortable about this national accounts picture. But we think labour supply via immigration will push unemployment back up to 4% and ease some wage pressures. This should buy the RBA more time while the full impact of 4% in rate rises in little over a year feeds through. (We are still only 80% of the way there). If Australia was a company these accounts would be causing analysts to downgrade their outlook. Workers are less productive and costs are rising. But some of this may still be the lingering impact of the pandemic. Cue discussions on working from home. The RBA will be hoping this can turn around in the year ahead. Immigration will slow in the next 12 months to around 1%, because the sharp increase in foreign student numbers was a one-off return from the pandemic. An outright recession (not just a per capita one) is not a base case -- but the chances of it will rise. Dr Bullock will be facing the dilemma of a slowing economy under full employment and high wages as she takes over as RBA governor in a fortnight. We wish her luck trying to work out what all this means for rates. Author: Tim Hext, Portfolio Manager and Head of Government Bond Strategies |
Funds operated by this manager: Pendal Focus Australian Share Fund, Pendal Global Select Fund - Class R, Pendal Horizon Sustainable Australian Share Fund, Pendal MicroCap Opportunities Fund, Pendal Sustainable Australian Fixed Interest Fund - Class R, Regnan Global Equity Impact Solutions Fund - Class R, Regnan Credit Impact Trust Fund |
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 8, 2021. PFSL is the responsible entity and issuer of units in the Pendal Multi-Asset Target Return Fund (Fund) ARSN: 623 987 968. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient's personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com |
21 Sep 2023 - Performance Report: PURE Income & Growth Fund
[Current Manager Report if available]
21 Sep 2023 - Performance Report: Emit Capital Climate Finance Equity Fund
[Current Manager Report if available]
21 Sep 2023 - Climate change solutions in Japan
Climate change solutions in Japan Nikko Asset Management September 2023 "Hottest on record" is on repeat In scenes now repeated every summer, not a day seems to go by without headlines of record-high heat somewhere on the planet, whether in Europe, Asia, Africa or North America. The World Meteorological Organization said it was "extremely likely" that July 2023 will be the hottest on record1. As temperatures climb, news images of raging wild fires have become all too common, along with other hallmarks of extreme weather such as violent storms and destructive flooding. We have been spared the worst of extreme weather patterns here in Tokyo. Nevertheless, we have acutely felt the impact of climate change. In Tokyo this August the mercury rose above 30 degrees Celsius every day of the month for the first time since records started being kept in 1875. As the country becomes more tropical in climate, long-standing traditions are being challenged. An example is in baseball, Japan's national pastime. The sport is usually played without any breaks. However, a "cooling time" rest period was introduced for the first time at the 105th edition of the National High School Baseball Championship, a nationwide tournament held annually in August. This break with tradition caused a national debate, with many of us wondering if children in the future will even be able to enjoy pastimes long associated with the summer in this country such as tennis, soccer and rugby? It is no secret that greenhouse gas (GHG) emissions play a role in global warming. Yet, despite pledges by governments around the world to reduce GHG output, global emissions have been increasing steadily (Chart 1). Our tendency to ignore a looming catastrophe was satirized in the 2021 movie Don't Look Up. Two astronomers played by Leonardo DiCaprio and Jennifer Lawrence discover a comet hurtling towards earth and warn the world of the impending disaster, but to no avail. In desperation, the two scientists beg the world via social media to just look up, but the US president, portrayed by Meryl Streep, advises to do just the opposite, telling people "don't look up". Chart 1: Global GHG emissions and corresponding temperature change World total GHG: Total greenhouse gas emissions including land-use change and forestry, measured in million tonnes of CO2-equivalents.World temperature change from GHG: Change in global mean surface temperature (in °C) caused by greenhouse gas emissions. Source: Out World in Data material compiled by Nikko AM Japan: a major GHG emitter with room for improvement Unlike fictional characters in a movie, in reality we have no option but to look up and consider what is driving climate change. Let us take our home market of Japan as an example. The country was the seventh largest GHG emitter in 2021 (Chart 2). Japan's significant emissions are a result of its heavy reliance on fossil fuels to generate power, having slashed its dependency on nuclear power plants following the earthquake and tsunami-induced nuclear disaster in 2011. Chart 2: The world's top GHG emitters Source: Our World in Data material compiled by Nikko AM Seen from a different perspective, being a large GHG emitter means there is plenty of room for Japan to improve its environmental standing. In 2020, the country made an ambitious pledge to reach carbon neutrality by 2050, and in 2021, it set a goal to cut GHG emissions 46% by 2030 from 2013 levels. The share of renewable energy that generates Japan's electricity has risen to 22.4% in 2021 from 12.1% in 2014, according to the Institute for Sustainable Energy Policies2. There are other concrete signs that Japan is indeed improving its standing, in particular among its private sector. As Chart 3 shows, Japan has the highest number of companies that support the Task Force on Climate-Related Financial Disclosures (TCFD). Upon request by G20 central bankers and finance ministers, the Financial Stability Board established the TCFD in 2015 to help the financial sector assess and price climate-related risks as well as opportunities. The TCFD Recommendations were released in 2017 and widely credited with shaping the voluntary climate-related financial disclosure landscape. However, whilst support for the TCFD is encouraging, the quality of disclosures still has room for improvement. Chart 3: TCFD-supporting institutions by country as at July 2023 Source: TCFD Consortium material compiled by Nikko AM Awareness towards sustainability within Japanese society is expected to increase, with companies taking a more proactive role in promoting it. Interest towards ESG investment is also rising among individual investors, led by those of the younger generation. According to a survey by Japanese news provider QUICK's ESG Research Center, 48% of respondents in their 20s were interested in ESG investment, compared to 44% in their 30s and 42% in their 40s3 . Equity strategy focused on climate change In addition to Japanese companies and individuals, awareness towards sustainability is also increasing among the country's financial institutions and investors. Until recently, only a few financial institutions disclosed their financed emissions, which are GHG emissions linked to investment and lending activities. However, more such institutions are now hiring sustainability specialists to estimate their financed GHG emissions, and their disclosure is seen gathering pace going forward. Against such a background, we expect increased demand among investors to reduce GHG emissions linked to their investments. One strategy asset managers use to meet such demand for portfolios with lower GHG emissions focuses on urging companies to accelerate decarbonisation efforts via stewardship activities. Nikko AM's climate change-focused Japanese equity strategy takes such an approach (Exhibit 1). Exhibit 1: Climate change-focused Japanese equity strategy's objectives Source: Nikko AM The strategy covers all sectors to construct a low-GHG portfolio, providing exposure to Japanese stocks that is similar to the TOPIX while simultaneously aiming to limit financed emissions. As at end-July 2023, the portfolio's estimated tracking error versus the benchmark TOPIX was 0.34%, of which the estimated risk attributed to industry allocation was a modest 0.13%. GHG emissions and intensity are maintained approximately below 50% of those of the benchmark TOPIX (Exhibit 2); GHG emissions by companies are based on publicly disclosed information as well as estimates calculated using an in-house model. Exhibit 2: Portfolio-wide GHG restrictions and targets4 (KPIs) Source: Nikko AM A key feature is the utilisation of in-house GHG emission estimates, which enable us to expand our coverage significantly from approximately 600 companies to the entire TOPIX universe of roughly 2,100; the weight coverage has also increased from 82% to 100%. We are able to cover almost the entire TOPIX on a market cap basis through the use of our own estimates as well as actual reported results. In addition to such a quantitative approach, another important feature is engagement with the investee companies. The quantitative data obtained is utilised in engagement undertaken by Nikko AM's Sustainable Investment Department. This interaction encourages companies to operate in a more environmentally conscious manner and disclose relevant information (Exhibit 3). The department's on-the-ground stewardship specialists are well positioned to leverage Nikko AM's influence on investee companies. Their well-established relationships with local companies give Nikko AM an advantage over foreign peers. In addition, our stewardship activities in all global regions follow the highest international standards, with the firm having been recognised in 2023 for the second consecutive year by the UK's Financial Reporting Council as a signatory to the UK Stewardship Code. Nikko AM was the first Japanese asset manager accepted to the Code based on a global, firm-wide application. Exhibit 3: Driving decarbonisation initiatives through engagement Source: Nikko AM Engagement example: a major Japanese steel company
Summary The climate change crisis we are witnessing presents both challenges and opportunities. Focusing on the latter from an investment perspective, in our view asset managers are in a position to help facilitate society's goals of reducing GHG emissions and decarbonising. An important way of meeting investors' needs for portfolios with a lower carbon footprint is through direct engagement with investee companies. Japan is currently a major GHG emitter but the country's ambitious plan to become carbon neutral by 2050 has made it necessary for companies to ramp up decarbonisation efforts. The intent is not in short supply as Japan has the highest number of companies that support the TCFD and they are increasing the quality of their data disclosures. We believe strategies focused on climate change-related initiatives in Japan are uniquely placed to help with the construction of a greener portfolio while assisting society as a whole in its decarbonisation efforts. Author: Masayuki Teraguchi, Head of Investment Technology Fund Management Department Funds operated by this manager: Nikko AM ARK Global Disruptive Innovation Fund, Nikko AM Global Share Fund
1 "July 2023 is set to be the hottest month on record", World Meteorological Organization, 27 July 2023 2 "2022 Share of Electricity from Renewable Energy Sources in Japan (Preliminary)", Institute for Sustainable Energy Policies, 26 April 2023 3 QUICK sustainability awareness survey, December 2021 4* Figures for reductions in GHG emissions and GHG intensity are target values that could become difficult to achieve due to the market environment, AUM, changes in companies' emissions or other such factors. The figures are target levels as of the time of portfolio construction and rebalancing. They do not constitute a guarantee that the figures will be constantly maintained within a certain range during the investment management period. * The above quantitative targets (GHG emissions to be no more than approximately 50% of the benchmark level, etc.) may be subject to change in the case of changes in the market environment, etc. Important disclaimer information |
20 Sep 2023 - Performance Report: Airlie Australian Share Fund
[Current Manager Report if available]
20 Sep 2023 - Performance Report: Bennelong Long Short Equity Fund
[Current Manager Report if available]
13 Sep 2023 - Quay podcast: How high rates are impacting REITs
Quay podcast: How high rates are impacting REITs Quay Global Investors September 2023 Quay's Co-Principal and Portfolio Manager, Justin Blaess, speaks with Bennelong Account Director, Jodie Saw, about the impact of high rates on REITs (less of an issue than most expect), the mismatch between supply and demand (the main drivers of return), the opportunities emerging globally, and Quay's long-term earnings outlook. Timestamps:
Funds operated by this manager: Quay Global Real Estate Fund (AUD Hedged), Quay Global Real Estate Fund (Unhedged) For more insights from Quay Global Investors, visit quaygi.com The content contained in this audio represents the opinions of the speakers. The speakers may hold either long or short positions in securities of various companies discussed in the audio. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the speakers to express their personal views on investing and for the entertainment of the listener. |
12 Sep 2023 - Cultivating change - Nestlé's leading approach on sustainability and creating shared value
Episode 37: Cultivating change - Nestlé's leading approach on sustainability and creating shared value Magellan Asset Management August 2023 |
In this episode, Magellan's Portfolio Manager Elisa Di Marco, and Investment Analyst, Tracey Wahlberg discuss how environmental values are driving corporate culture with Rob Cameron, Nestlé's Global Head of Public Affairs. They talk through the company's net zero approach, and its commitment in leading its supply chain to embrace regenerative agriculture, recycling, packaging innovation and human rights. And Rob Cameron explains how these initiatives benefit shareholders, through growth opportunities and cost discipline. |
Funds operated by this manager: Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 ('Magellan') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Magellan claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan. |

8 Sep 2023 - Sorting bubbles from justified inflations!
Sorting bubbles from justified inflations! Alphinity Investment Management August 2023 Since Chat GPT3 crashed onto the scene at the end of 2022, the world has been swept up in (generative) Artificial Intelligence (AI) euphoria. AI related stocks have all rallied, companies have expanded their capital plans and gone to great lengths to explain how and why they use AI, and analysts have sharpened their bull case scenarios for future growth opportunities. We've seen similar transformative technology breakthrough exuberance rise and fall in the past, such as Web 3, the metaverse and crypto architecture last year. Is AI just another tech bubble about to implode? Or something much more substantive? The answer is yes to both. In this note, we expand on why we remain excited about the use cases and subsequent earnings potential that can be built off the back of AI in the future and why we believe this technology shift, and the value that it can create, is real. Investors however need to be very selective as the monetisation potential of AI will flow through different elements of the chain at various levels an at different times. Two clear early winners in our view are Microsoft and Nvidia. The AI induced rally The release of Chat GPT did bring the technology sector heavily back into focus in the first half of the year with the Mega (or profitable) Tech index rallying 64% to the end of July. But this reborn tech euphoria also dragged the Unprofitable Tech stocks 37% higher, to outperform the broader US market by more than 40% and 15% respectively. AI enthused rally has boosted profitable and unprofitable tech stocks YTD There is undoubtedly an element of AI froth that has come into the technology sector, as some companies have seen AI potential wash into their share prices before a clear articulation of how the earnings that will back these valuations will emerge. And we have seen the downside of this where companies such as Data Dog and Palantir have had solid falls after earnings disappointments, while some of the air has also come out of other companies such as MongoDB, Snowflake and Salesforce. We expect the market to become more discerning in terms of wanting to see a clearer monetisation path to determine who the key winners will be as opposed to the broad lifting of almost all boats even tangentially brushing up against the AI theme that we have seen so far this year. Use cases of generative AI In terms of winners in the AI space, it is all about a clear identification of use cases. AI is not a new theme. The difference now is generative AI developments expand these technological capabilities and put them within the reach of hundreds of millions of new users each month. The IDC estimates the global AI market will see 19% compound annual growth between now and 2026 to reach US$900bn while Goldman Sachs predicts generative AI alone could drive 7% or an almost $7trn increase in annual global GDP growth over the coming decade. There are various elements of the tech ecosystem where value will emerge to varying degrees. At the front end you have the key enablers such as semiconductor designers like Nvidia that will benefit along with foundry businesses like TSMC and Samsung and the semiconductor equipment players such as ASML, Applied Materials and Lam Research who supply them. Then you shift towards the infrastructure names such as networks businesses like Arista, and the cloud players that span Microsofts Azure, Amazons AWS and Googles GCP. But the really exciting opportunities should emerge beyond the initial enablers and infrastructure players and be in those businesses that can create applications based on AI. Established businesses such as ServiceNow, Workday and Salesforce are working to embed AI within their current offering, but the real opportunity is likely to be in the emergence of a business that applies AI to a deep revenue pool and owns that vertical. Whether that be in healthcare, finance or customer service, there is potential for an AI leader to emerge that could be the next big tech name in 5yrs. AI offers a plethora of investment opportunities, but not all created equal Source: Alphinity, 31 July 2023 Two clear early winners currently - Microsoft & Nvidia Investing in AI is like investing in any other idea for Alphinity; find the investment ideas that are showing earnings leadership, come wrapped in a quality business, and are bound by a reasonable valuation. In AI it comes down to identifying a tangible use case and the monetisation potential that flows off the back of this to driving earnings outperformance, exceptional returns and valuation upside. Microsoft and Nvidia are two clear early winners in AI that display these characteristics. Microsoft (MSFT) - Well positioned for broad secular trends in technology and a leader in AI Microsoft has multiple legs of opportunity flowing from AI. At the front end, it has announced pricing for its AI infused M365 co-pilot product at $30per user per month. Applying this pricing to Microsoft's 250m commercial users of it's higher value products, we estimate Co-pilot can drive an extra $27bn in revenue, or 13%, over a 3-5yr period, assuming a conservative 30% penetration rate. There is also the uplift in consumption that will run through Microsofts cloud business Azure, a potentially simpler Ai product for the extra 200m commercial users on simple product sets, plus incremental gains from any shift in search traffic from Google to Bing. Wrap this together and while the Microsoft share price has risen in 1H23, investors are currently paying 30x Price to Earnings for a business that can grow mid-teens over the next 3 with multiple growth drivers. MSFT offers tangible AI monetisation Source: Alphinity, Bloomberg, 31 July 2023 Nvidia (NVDA) - Global leader in Graphics Processing Units with generative AI a gamechanger Nvidia is the other key initial beneficiary from AI, with their most recent result generating an almost unprecedented upgrade in earnings expectations for a business of its scale. Generative Ai is all about GPU's given their ability to run calculations and simulations in parallel; the key tasks for AI. And Nvidia sits front and centre as the leader in terms of GPU performance coupled with a powerful software capability making their GPU's flexible and programmable. The key to the Nvidia investment case is ensuring that the current demand is not just a flash in the pan. To our mind, there is sustainability to this demand given that generative AI has triggered a shift in data centre infrastructure from CPU's towards GPU's. With around $1tr of datacentre infrastructure installed, and this infrastructure turning over around every 4 years, this provides rich structural tailwinds that should drive Nvidia earnings for years to come. On our estimates, NVDA should generate around $30bn in datacentre revenue this year (2/3rds of total revenue). If we push the shift from CPU to GPU through our discounted cashflow model, we estimate that datacentre revenues can increase to $80bn CY27. Investors are paying c40x FY24 Price/Earnings, with what looks like growth to come for the years ahead. Revenue & margin uplifts driving unprecedented EPS upgrades over next two years Source: Alphinity, Bloomberg, 31 July 2023 In summary, AI is an exciting investment opportunity, with many growth tangents still to be discovered. But like any investment, investors need to be able to have a line of sight to the earnings potential and be disciplined in terms of what they pay for these companies to ensure that they are not riding a bubble that may eventually pop. Authors: Elfreda Jonker, Client Portfolio Manager & Investment Specialist and Trent Masters, Global Portfolio Manager |
Funds operated by this manager: Alphinity Australian Share Fund, Alphinity Concentrated Australian Share Fund, Alphinity Global Equity Fund, Alphinity Sustainable Share Fund Disclaimer |
29 Aug 2023 - The Rate Debate - Ep 41: Uncertainty abounds in the face of economic challenges
The Rate Debate - Ep 41: Uncertainty abounds in the face of economic challenges Yarra Capital Management August 2023 Amidst ongoing economic uncertainties, the RBA has seen fit to keep rates on hold for a consecutive month and wait to see how the lagging effects of 12 rate hikes play out. |
Funds operated by this manager: Yarra Australian Equities Fund, Yarra Emerging Leaders Fund, Yarra Enhanced Income Fund, Yarra Income Plus Fund |
28 Aug 2023 - What really matters in investing
What really matters in investing Magellan Asset Management August 2023 |
Global Portfolio Managers, Arvid Streimann and Nikki Thomas dissect what's important and what's a distraction in the investment world. They talk us through where they are currently finding opportunities and how they are positioning the portfolio to benefit from structural tailwinds. Investment Analyst, Emma Henderson joins them to provide a deep dive into our restaurant holdings and why we like them. |
Funds operated by this manager: Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 ('Magellan') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Magellan claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan. |

11 Aug 2023 - ESG in 10: Episode 9- The Australian Green Bond Program, with Ardea
ESG in 10: Episode 9 - The Australian Green Bond Program, with Ardea Fidante Partners July 2023 |
Funds operated by this manager: Bentham Asset Backed Securities Fund, Bentham Global Income Fund, Bentham Global Income Fund (NZD), Bentham High Yield Fund, Bentham Syndicated Loan Fund, Bentham Syndicated Loan Fund (NZD) |
8 Aug 2023 - Webinar Podcast 01 Aug 2023 | Infrastructure Funds - Analysing the Opportunities and Risks
Webinar Podcast | Infrastructure Funds - Analysing the Opportunities and Risks FundMonitors.com 01 August 2023 |
Listen to the podcast to discover the key insights and opportunities in this dynamic investment landscape. In this informative 45-minute session, we explored the potential benefits and risks of investing in infrastructure funds and uncovered the various types of infrastructure assets, including transportation, energy, and social infrastructure. Our panel consisting of Sarah Shaw from 4D Infrastructure, Ben McVicar from Magellan, and Matt Lorback from Atlas Infrastructure also delved into the regulatory and policy considerations impacting infrastructure investments. |
3 Aug 2023 - In Conversation with Airlie's Analysts
In Conversation with Airlie's Analysts Airlie Funds Management July 2023 |
Airlie Australian Share Fund Portfolio Manager, Emma Fisher, engages in a conversation with Airlie's senior analysts, Vinay Ranjan and Joe Wright. Emma discusses the performance of the Australian market during the past 12 months and asks Joe and Vinay to share insights on how some of their stocks have performed during the year within the Fund. This includes Mineral Resources, QBE Insurance and James Hardie. Funds operated by this manager: Important Information: Units in the fund(s) referred to herein are issued by Magellan Asset Management Limited (ABN 31 120 593 946, AFS Licence No. 304 301) trading as Airlie Funds Management ('Airlie') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to an Airlie financial product or service may be obtained by calling +61 2 9235 4760 or by visiting www.airliefundsmanagement.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of an Airlie financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Airlie makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Airlie. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any third party trademarks contained herein are the property of their respective owners and Airlie claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks.. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Airlie. |
2 Aug 2023 - Do they have your back or just your back pocket? The fun, games, and fees of equity investing
Do they have your back or just your back pocket? The fun, games, and fees of equity investing Collins St Asset Management July 2023 FY23 recap: ASX 200 defies the bears to end up +10% over last financial year It is often said that: When someone with money meets someone with experience, the person with the experience gets the money and the person with the money gets an experience. For equity investors, regardless of whether or not they choose their own investments or outsource some or all of that responsibility to an external manager/adviser, this remains a very real and important risk to be on top of. Many Directors and Management teams do not run companies for the benefit of shareholders despite all of the claims and promises of future gold and glory laid out in glossy annual reports. Fat salaries for start up company Directors, gifted equity to management in large established businesses and all manner of perks and parties along the way are, all too sadly, par for course. To that end, its important to understand the governance structure of a company and the way in which senior decision makers are remunerated before deciding whether or not to invest. Some key questions we at Collins St Asset Management seek to understand before deploying capital include:
Sadly, a rolling stone gathers no moss in much the same way as an upwardly mobile executive can suffer no financial pain by moving from one company to the next just before the next crisis is uncovered. Of course, Directors and senior Management are not alone in their pursuit of cushy rent-seeking corporate opportunities. Whilst many intermediaries in the funds management space are often no better, there are a variety of fee models on offer which invariably incentivise different behaviours. The table below provides an overview of some of the different ways professional fund managers may seek to charge their clients: Overview of fee structures Author: Rob Hay, Head of Distribution & Investor Relations For wholesale investors only |
Funds operated by this manager: |
31 Jul 2023 - Will service stations be stranded assets?
Will service stations be stranded assets? Tyndall Asset Management June 2022 At the same time as we are seeing global policy initiatives seeking to further accelerate the uptake of electric vehicles (EVs), corporate activity in the fuel and convenience retailing sector has stepped up. If the common belief that EVs will displace the need for Fuel Retailers, why are industry players increasing their capital allocation to the sector? We investigate the outlook for Fuel Retailers against the commonly held perception that they will ultimately be stranded assets. With the transport sector accounting for 14% of global carbon emissions (refer Figure 1), internal combustion engines (ICEs) are directly in the firing line of governments seeking to meet reductions targets. Further, the development of cost-competitive alternative technologies means that the transition to cleaner transport is not only achievable but now gathering significant momentum around the world. Figure 1: Global Greenhouse Gas Emissions by Economic Sector Source: US Environmental Protection Agency The consequence is that ICEs are likely to go the way of the steam engine over time. This begs the question - will service stations become stranded assets? What are the prospects for these sunset industries? Three years ago the answer to these questions was largely speculative. However, the COVID-19 period has created an ideal test environment in which the impact of a reduction in fuel volumes can be readily examined. This paper reviews the data and the risk that service stations become stranded assets. It is beyond debate that over the next two decades the vast majority of Australia's passenger vehicle fleet will transition to cleaner fuels. Car manufacturers are moving rapidly towards EVs, recognising the mega trend and the cost comparability. Governments around the world have varying incentives to assist in the transition, with adoption of EVs having increased rapidly as price-competitive and range issues have been overcome. Australia lags but won't foreverWhile adoption of EV's in Australia has been relatively slow to date, it would be naïve to consider that this will remain the case. Norway is the country most advanced in electric vehicle penetration of new car sales. This has come on the back of significant government incentives for the electric vehicles and support for infrastructure development. While EVs were only 1% of new car sales in 2011, the Norwegian Office of Vehicle Statistics reports that in the nine months to September 2022, EVs represented 77.8% of new car sales (refer Figure 2). Figure 2: Electric Vehicle Share of New Car Sales - Norway Source: Road Traffic Information Council (OFV); Electric Vehicle Association (Elbil). *Year to date September 2022. What would this adoption rate mean for Australian fuel volumes?We have modelled the implications of an adoption rate as rapid as Norway's for the Australian market, allowing us to map out the potential impact on retail fuel demand as the energy transition proceeds. We have also assumed that the uptake of hybrid vehicles accelerates from recent trend rates, as more models become available. Combined these assumptions indicate that ICE vehicles will be a rapidly declining proportion of new car sales, to the point that they are all but eliminated by 2033. Notably this is faster than the proposed legislated goal of ending ICE vehicle sales in the UK and EU by 2035 and close to the recent Biden Administration proposal to phase out ICE vehicles by 2032. Figure 3: Composition of New Car Sales (Australia) Source: VFACTS, Tyndall estimates While the composition of new car sales changes rapidly in a decade, the impact on the vehicle fleet (refer Figure 4) is a much slower process. Under this scenario, hybrids and electric vehicles will represent only one-third of the total fleet by 2033. Figure 4: Australia's Vehicle Fleet Mix Source: VFACTS, Tyndall estimates What is evident from this analysis is that the impact on volumes from the transition to electric vehicles is extraordinarily protracted (Refer Figure 5). Retail volumes are not forecast to decline from 2019 levels until 2029. And even then, the decline is only 1.3ppts. The impact does accelerate quite significantly during the following decade, with 2040 volumes forecast to be c33.5% lower than 2019 levels. Figure 5: Fuel Volumes (Indexed to 2019) Source: ABS, Tyndall estimates A longer-term volume contraction is only half the storyWhile significant and at face value perhaps alarming, a significant decline in fuel volume is only half the story. The other relevant variable of course is price, and the COVID-19 experience has demonstrated the ability of the fuel retailing industry to maintain dollar gross margin in the face of falling volumes. This rational industry response perhaps benefited from the recent memory of unprofitable discounting that occurred during calendar 2018. Chart 6 shows the trends in gasoline volumes and retail gasoline margins over the recent past - capturing the period of COVID disruption. As the chart shows, Fuel Retailers responded to lower volumes with price increases, such that dollar gross margins expanded. Figure 6: Retail Gasoline Margins and Volumes Source: Australian Petroleum Statistics, Department of Energy; Australia Institute of Petroleum; Tyndall In the June 2020 quarter, which includes the early part of the pandemic and national lockdowns, fuel volumes fell ~45%. Retail margins in that period averaged 18.3 cents/litre, ~46% above the 2019 average. Preparing for the futureAs highlighted above, the medium-term outlook for Fuel Retailers is sound, with the impacts of the fleet conversion to electric vehicles a very slow burn that will not materially impact volumes for a decade. That said, the longer-term outlook does point to significant erosion of fuel volumes. While pricing offsets to combat this have been proven possible through the COVID experience and at face value are not unaffordable, the very long-term scenario is that retail fuel volumes go to zero. We are watching this area closely and observing how the listed participants are progressing their strategies. Both Viva Energy and Ampol have de-risked their businesses by selling service station properties but with long-term options that provide ongoing control over the site. Author: Tim Johnston, Portfolio Manager Funds operated by this manager: Tyndall Australian Share Concentrated Fund, Tyndall Australian Share Income Fund, Tyndall Australian Share Wholesale Fund |
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