The Rules of Investing

Navigating the COVID crisis

Guest: Chris Rands, Portfolio Manager, Nikko Asset Management
One of the biggest questions on many investors’ minds in recent weeks has been, just how bad will the economic contraction be? But Chris Rands, Portfolio Manager for the Nikko Australian Bond Fund, says this isn’t the question to focus on. Instead, the focus should be on how long the downturn will last.
“It’s going to be weak. We all know it’s going to be weak. You take a quick walk around outside and you’ll see that absolutely nothing is open. If it’s down 5, 10, 15 percent, nothing would really shock me. It’s more important to say, “how long is it going to last?””
In this episode of The Rules of Investing podcast, Chris speaks to us about the stability of Australia’s financial institutions, when he first realised that COVID-19 presented a material risk to markets, and how the crisis has affected his view on Australian housing.

COVID-Crash special with Sam Sicilia and Martin Thompson

Guests: Sam Sicilia, Hostplus; Martin Thompson, Frontier Advisors.
The ASX200 has collapsed by more than 20% in just three weeks since COVID-19 went global. When markets fall so far and fast, it induces a state of panic for many investors. In this episode of The Rules of Investing, I sit down with two very special guests to get their take on the current situation, and to hear what we could lay ahead.
The first is Sam Sicilia, Chief Investment Officer of Hostplus. With more than $50 billion of funds under management and one million members, Hostplus is one of Australia's largest superannuation funds. Under Sam's guidance, Hostplus has become the top performing super fund in Australia over 10 years, according to Superguide.
Also joining us is Marty Thompson, Senior Consultant at Frontier Advisors. After studying science in his undergraduate degree, Marty undertook PhDs in Molecular Cell Biology and cancer research. He's also worked as a research scientist and teacher in virology at Murdoch University. Since starting his Masters of Applied Finance, Marty has worked as a Commercialisation Analyst at Melbourne University, and an Investment Analyst at Starfish Ventures, a leading venture capital firm focused on biotech startups.
In the first part of the episode, we discuss the disease itself, including what we know and don't know, and how the spread of the disease could play out from here. We then turn to discussing the effects that the disease and associated disruptions could have on the real economy. Finally, we discuss the effects on financial markets and individual investors.

How to buy growth companies before they get expensive

Guest: Mike Hill, Managing Director & Portfolio Manager, Bombora Group.
Investors who bought into Afterpay’s 2016 IPO have had great returns, seeing their investment appreciate by more than 33 times in under four years, even after the recent sell-off. But for investors invested in Afterpay’s pre-IPO round less than a year earlier, they’ve seen far great returns – well over 100 times.
Traditionally, pre-IPO investing has been restricted to institutions or venture capital funds with long lock-up periods due to the illiquidity of the underlying investments. But Mike Hill, Managing Director and Portfolio Manager at Bombora Group, takes a different approach. By investing in both private and publicly listed companies, they’re no longer subject to the same level of illiquidity.
In this week’s episode of The Rules of Investing podcast, we discuss some of the similarities and differences between working in private markets and public markets, one unknown company that he believes could one day be a large cap, and we take a dive into a case study of an ASX-listed company he's taken from private to public.

Aboud: What I'd buy in a market crash

Guest: Anthony Aboud, Perpetual Investments.
At some point in their lives, most people have lusted after a dream item, but been unwilling or unable to justify the price tag. Whether it’s a car, jewellery, or luxury holiday there's a point at which the price is too high to justify. But then, the retailer suddenly announces a big sale that brings it within reach.
Buying stocks is no different. Quality comes at a price, but occasionally the entire equity market goes on sale - allowing you to snap up your dream stocks at a discount.
In this week’s episode of The Rules of Investing, Anthony Aboud from Perpetual shares two companies that he’d love to buy the next time stocks go on sale. We also discuss his large overweight position in Commonwealth Bank, what he looks for in a compelling short candidate, and the company results he’s most interested to read this February.

Finding income in a low-rate world

For the best part of a decade now, income hungry investors have battled to find a decent yield. Thankfully, the capital gains from falling rates have offset the lack of income. But with rates around the world close to zero, it seems there’s limited room left for more capital gains.
Let me share an example. According to the ATO, the average super balance for a 65-74-year-old man is $446,800. Meanwhile, the average super balance for a 65-74-year-old woman is $378,600. So, let’s say our couple has a combined super balance of $825,200. Quite a healthy nest-egg. But with term deposit rates at around 1.75%, that will produce just $14,441 of income over the course of a year.
It should come as no surprise then that private credit, with its chunky yields, has seen a boom in popularity in recent times. Once purely the domain of institutional investors, these products are increasingly available to retail investors through listed structures on the ASX. Offering returns in the mid-to-high single digits, they attract a premium for the higher risk nature, while generating additional fees from deal origination.
Andrew Lockhart, Managing Partner of Metrics Credit Partners, has been a pioneer in this sub-sector in Australia. He worked for decades at a Big Bank on these deals, and then nine years ago decided to start Metrics with his business partners. In this week’s episode of The Rules of Investing, we discuss how the GFC shaped his investment philosophy, how Australia's big banks have changed the way they’re funded, and the sectors he'd be avoiding if the market closed for 5 years.

The theme to dominate this decade in markets

The last 40 years in financial markets have been heavily influenced by a very important factor: falling interest rates. A look at the 10-year US bond yield shows that it peaked in '81 at around 16%, and since then it's been a steady march lower, seemingly inevitably marching towards zero. According to Paul Moore, founder and Chief Investment Officer at PM Capital, this trend has now passed an inflection point. Rates have bottomed in the US and Europe, and inflation might not be as far away as many expect. 
 
"You're slowly seeing the conditions put in place for inflation to be underpinned. Every central bank wants to create inflation. Ultimately, they'll get what they asked for. They might not want it when they finally get it, but they will get it...
 
He believes that this trend will have far reaching implications across all asset markets, but for equity investors it means that the types of investments that have worked well in the past, won't in the future. And likewise, some investments that have been out of favour, could be due for a comeback. 
 
Tune in to the latest episode of The Rules of Investing, presented by Livewire Markets, to hear his take on which assets are set to benefit and which will suffer. 

How an everyday investor competes with the pros

Angie Ellis might not be a 'household name' among investors, but she's racked up quite a track record since she started 8020 Investments about five years ago. See, Angie is a regular entrant to the Fairfax share tipping competition, published in The Age and the Sydney Morning Herald each week. And of the seven times she's entered the competition this year, she's won it five times, and came second twice. This is no fluke either, she's consistently been the top performer over several years. 
 
So for my last podcast for 2019 (this was recorded in December), I decided to change up the pace, skip the fund managers, and talk to one of Australia's most successful private investors. 
 
We discuss how she transitioned from a part-time to a full-time investor, and how it's affected her portfolio; her strategy for the tipping competition, and how to compares to her personal portfolio; and she discusses some of the companies that have been key to her success. 

Two consumer stocks making it big overseas

The Australian team at Fidelity International often draw on influence of legendary Fidelity fund manager, Peter Lynch. But one area that the approach hasn't always worked has been store rollouts. Lynch famously loved a good store rollout as it was predictable growth with limited risk. As Kate Howitt, Portfolio Manager at Fidelity International explains in this week's podcast, this approach runs into a problem in Australia:
"If you try to put that into the Australian market there's a bit of a problem. That is that by the time you're large enough to list, you're probably about halfway through rolling out stores, because our market is so small."
Her approach instead, has been to look for great Australia consumer brands and retailers that can roll their product or store out overseas. In this episode of The Rules of Investing, she shares her thesis on two of these companies. She also discusses her quest to understand what makes a great company, and explains a strange anomaly being created by the combination low rates, easy money, and passive investing.