The Rules of Investing

Where Soul Patts is investing for long term growth and dividends

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.

How Hyperion unearths rare but exceptional growth companies (plus two that pass their filters)

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.

How to invest $1 million in 2024

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

The lead indicator for Dion Hershan’s best trades (and two high quality stocks for the ”slow grind” ahead)

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

Ben Griffiths’ small cap playbook as animal spirits awaken

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

2 killer growth stocks (and why culture is key to successful small caps)

Culture is not something that immediately springs to mind when assessing a company and its prospects for the future.
More often than not, we investors are scouring profit and loss statements, comparing financial ratios and (if we have the time and skill) constructing valuation models.
However, good culture is critical in a business; it takes a long time to build and is hard to maintain. And yet, it can take as little as one rogue employee to upset the delicate balance and ruin it completely.
This is something that Qiao Ma, portfolio manager for the Munro Global Growth Small and Mid-Cap Fund, is intimately aware of.
As Ma revealed, if she determines that the culture is wrong when conducting her due diligence of a company, despite everything else looking good, she is walking away.
No 'ifs'. No 'buts'. She's not investing in that company. 
"When it’s the wrong culture, it’s 100% of the [investment] decision," she said. 
Culture is the ultimate forward-looking indicator of where a company is going. It does not matter, the past glory it was able to achieve. If you have the wrong culture, you have no space."
In this episode of The Rules of Investing, Livewire's Chris Conway learns more about Ma’s investment philosophy, how it has developed over the years, and her outlook for growth investing – particularly in the small and mid-cap space.
Ma also shares a handful of stocks she likes right now and the types of opportunities she is hunting for over the next 12 months. 
 
Timecodes: 
0:00 - Intro
0:47 - How Qiao Ma's investment philosophy has developed over time 
3:33 - Value versus growth 
3:58 - On working at Lehman Brothers during the GFC 
5:57 - The best lessons from investment legend Peter Cooper: The importance of culture 
9:13 - How much culture should play into investment decision-making 
10:59 - Qiao's most memorable stock picks from her career
12:49 - The biggest surprises in markets from the last two years 
14:38 - The outlook on growth for the next 12-24 months 
17:57 - The major risks the Munro team is spending the most time debating
23:43 - The catalyst for small and mid caps to rebound 
24:25 - A stock that can fund its own growth: JD Sports (LON: JD) 
28:02 - Why earnings durability is so important 
29:18 - A high-conviction stock pick for the year ahead: On Holding (NYSE: ONON)
30:31 - The Rules of Investing's 3 common questions 
____________________________________________________________
Disclaimer:
 
The information provided by Munro Partners is general information only and is not intended to include, or constitute as, financial product advice. The views held by Munro Partners are current at the time of recording and are subject to change. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. This information has been prepared without taking account of the objectives, financial situation or needs of individuals. You should obtain independent advice from a licenced professional adviser before making any investment decision. Information about the Munro funds, including the product disclosure statements (PDS) for the Munro Funds is available at www.munropartners.com.au. Munro Partners is a corporate authorised representative of Munro Asset Management Limited, AFSL 480509.
 

We are in the midst of a social, economic, financial and political crisis

From geopolitics to fiscal policy, commodities to equities, this week's featured guest on The Rules of Investing has some high-conviction views on a whole range of subjects. 
For more than 40 years, Donald Amstad traded his way through the highs and lows of financial markets. After completing his undergraduate studies at Oxford University, Amstad began his career at Japanese trading house Nomura. He went on to hold roles at JPMorgan, JPMorgan Asset Management, and the Bank of America before spending the last 15 years of his career at Aberdeen Standard (now, abrdn). 
And although he may be a fixed income specialist by trade, you would be wise to listen to Amstad's interviews on many other subjects. 
Long-time readers and viewers of Livewire may have already seen some of Amstad's thoughts on the markets. In 2019, Amstad was a participant in Livewire's Expert Insights series. One of his videos has garnered more than 800,000 views since it was first uploaded - the most of any Livewire video ever. 
In the four years since that video was recorded, so much has changed in the world. Among them are the COVID-19 pandemic, the rapidly changing geopolitical situation to the slow (and ongoing death) of quantitative easing. But even as the world has changed, Amstad's core views on some of the most pressing challenges of our time have not. In fact, they have strengthened.
This week, Livewire's Hans Lee sat down with Amstad for a half-hour conversation on the big picture issues that are driving markets - and the issues that are not driving markets (yet). This is a conversation you cannot afford to miss. 
Note: This interview was conducted on Tuesday 7 November 2023. 

Invest in what you know, avoid what you don’t: Lessons from a Hall of Fame fund manager

Despite all of his success, Morry Waked has remained relatively under the radar. He’s not one to boast of his achievements, and he’s very rarely fronted the media.
At Livewire, we dedicate ourselves to finding the best fund managers in Australia - and in a testament to how underground Morry is, he hadn’t even popped up on our radar.
Last week, however, Morry found himself thrust into the spotlight and was inducted into the Australian Fund Manager Hall of Fame - joining a now 22-name strong list of the country's most recognisable fund managers such as Kerr Neilson, Chris Cuffe, Anton Tagliaferro, Catherine Allfrey, Phil King and many more.
What’s unique, is that all 21 other names on this list are fundamental investors. This is the first time that someone who employs a quantitative, or systematic approach to investing, as Morry describes it, has been added to the Hall of Fame.
In this episode, Morry sits down with Livewire's Ally Selby for a look at his remarkable career, a deep dive into quantitative investing, as well as some of the insights that Morry's models have identified today. 
Note: This interview was recorded on Thursday 26 October 2023. 
https://www.livewiremarkets.com/wires/invest-in-what-you-know-avoid-what-you-don-t-lessons-from-a-hall-of-fame-fund-manager/ 
Timecodes: 
0:00 - Intro 
2:59 - Fate and purpose: How Morry fell into funds management
3:59 - On trying to educate investors on his quantitative/systematic strategy
5:45 - Morry's career journey 
7:02 - The greatest lessons from Morry's career so far 
8:50 - Markets and models change, but Morry's philosophy doesn't
10:35 - On using Artificial Intelligence in investing 
11:16 - A beginner's guide to quantitative/systematic investing 
12:58 - Common misconceptions 
13:56 - The importance of remaining unemotional when investing 
15:05 - Where we are in the cycle today 
17:43 - Where Morry and the Vinva team see opportunity both locally and abroad 
19:07 - Why these models give Vinva a leg up on the competition
22:17 - ROI's common questions: What the market is getting wrong and lessons from wins and losses from Morry's career