The Rules of Investing

Dane Roberts, portfolio manager at Fifth Estate Asset Management, discusses investing in unlisted companies, the advantages of pre-IPO investments, and the outlook for unlisted stocks. Topics include liquidity in unlisted markets, debt vs equity, finding and filtering unlisted companies, the pricing of unlisted assets, and the perfect timing for investing. The podcast also touches on lessons from big wins and losses, the impact of rising interest rates, and the potential growth in Channel Infrastructure.

When volatility rattles markets, micro caps and small caps typically suffer the biggest drawdowns. But markets have a reliable habit of reverting to the mean sooner or later. That’s very good news if you’re investing in small caps, arguably, now! This week’s guest is Matthew Booker, portfolio manager and co-founder at Spheria Asset Management. Matt’s managed small company portfolios for over 15 years, consistently outperforming the index. The Spheria Australian Microcap Fund has outperformed the S&P/ASX Small Ordinaries Accumulation Index by over 7% per annum since inception, while the Smaller Companies fund has outperformed that same index by over 3% per annum. Just as importantly, they’ve managed to preserve capital and outperform the benchmark through the volatility of the past year. And he's done it without lithium stocks! We discuss: where we are in the small cap cycle; the opportunities Spheria are targeting; capital preservation; and the former market darling that’s back in business.  Timestamps 1:50 - Where we are in the small cap cycle 3:30 - Lessons from the past year 5:30 - Preserving capital 6:50 - Outperforming without lithium 10:00 - The best is ahead for small caps and microcaps 11:00 - Filtering down an enormous universe of stocks 12:40 - "Inverse broker" indicator 14:00 - Investing in "legitimate growth" 16:55 - Red flags 21:20 - Takeovers 23:00 - Outlook for M&A 28:00 - Return of an unloved market darling? 35:30 - A bottom-drawer stock (from New Zealand) Note: This interview was recorded on Wednesday April 19, 2023. 

Some fund managers don't freely disclose how they go about business, for fear of losing a competitive edge (or maybe letting on that they don't have any edge at all).  Then there's the other school of thought - tell investors how you operate, what you're thinking, and forge ahead as a thought leader. Then, if you're worth your salt, investors pick up what you're putting down and entrust you to manage their capital.  Today's guest on The Rules of Investing occupies the extreme latter end of that spectrum. James Gerrish  is the 9th most followed contributor on Livewire. Subscribers might know him best as author of the daily match out report, but that’s certainly not the only hat he wears. He’s also on the tools – running money at Market Matters across portfolios specialising in growth, income, international equities, emerging companies, and global macro. We discuss: the benefit of holding short-term views when long-term investing; the market signals that matter most the sectors with the best risk adjusted return and the one thing investors should fear Note: This episode was recorded on Wednesday December 12, 2023.  Timestamps 1:20 - Managing short-term views with long-term investing 4:30 - Short-term noise 8:50 - Banking crisis and deposit flight 10:40 - The most important signals across sectors and asset classes 15:30 - Are bond yields too high? 19:40 - Investing is a game of inches, not yards 23:50 - How important is the index? 25:00 - Risk across today's sectors 28:00 - The best risk-adjusted return 33:00 - Know your risk, and invest accordingly 35:40 - Discounting macro is a cop out 42:00 - The thing that should frighten all investors 45:50 - Look for companies with warts 48:00 - The market's getting ahead of itself 49:00 - Biggest career win and loss 52:00 - A company for all seasons

We all know the stats. Over the long term, the majority of active investment managers will underperform their benchmarks.  According to SPIVA data, more than 78% of funds underperformed the S&P/ASX 200 over the past decade, while more than 91% of funds underperformed the S&P 500 over the same time period. These rates improve significantly over shorter time horizons, with 42% of Aussie managers outperforming their benchmark over a one-year period, and 49% of US-based managers doing the same.  Given the volatility of today's market, and his own findings from more than 15 years specialising in asset allocation in global and Australian markets, Morgan Stanley Wealth Management's Head of Research and Investment Strategy Alexandre Ventelon believes investors should remain conservatively positioned.  This means a greater emphasis on (and portfolio allocation to) fixed income markets, but also, a greater reliance on passive products - like index-tracking exchange-traded funds (ETFs) - as we continue to navigate this short-term volatility. And right now, Morgan Stanley's model portfolios are heavily skewed towards passive products.  "With a short timeline, the best way to get there is with a passive instrument," Ventelon explains.  "The managers that have outperformed their markets on a one-year basis are often very different from one year to the other, and that's the issue. If you want to go with a tactical trade and you just choose one manager, based on how they performed last year, the odds will be against you."  In this special Listed Series special of The Rules of Investing podcast, Livewire's Ally Selby learns which asset exposures are best played with passive products in today's market, the circumstances in which passive and active products should not be used, as well as Morgan Stanley's outlook on the ETF market over the next decade.   Ventelon also shares why Morgan Stanley still remains bullish on the outlook for bonds. Plus, for a little bit of fun, we asked him to build a portfolio of listed products for the market today, while only picking one ETF from each asset class.  Timestamps 2:12 - How efficient the market is today  5:37 - How passive funds have changed the world of investing  8:12 - Are passive or active products better suited to today's market  13:22 - The instances where passive products should not be used in portfolios  18:17 - The instances where active products should not be used in portfolios  24:42 - Criticisms of passive products - do they hold any weight?  28:20 - What the market will look like in 10 years’ time 33:53 - Why Morgan Stanley is bullish on bonds (and why he is using VGB, VIF and VACF to play it)  38:45 - Ventelon's top ETFs for today's market (A200, WVOL, QUAL, VGB and VIF) 

Events of the past few weeks have cast doubt over the stability of the financial system. First Silicon Valley Bank and its troubled regional banking peers, then Credit Suisse. In typical fashion, the US Federal Reserve has stepped in to backstop the sector. In the case of Credit Suisse, UBS scooped it up for cents on the dollar.  These events have changed the way corporations perceive risk, according to this week's guest on the The Rules of Investing John Ayoub, Portfolio Manager for the Wilson Asset Management's Leaders Fund (ASX: WLE).  How does this play out for investors? Equity markets remain investable, according to Ayoub, but to do it right takes an approach that factors in the macro and micro.  Which is good, because that's exactly the approach taken by the WAM Leaders Fund, which was launched by Ayoub and colleague Matthew Haupt.  In today’s episode, we discuss:  the global banking crisis, and how this risk affects the Australian market; the political risk investors are underestimating; the way WAM use macro, micro and catalysts to find their winners; and we also touch on what defensive quality means, and why it’s the play in the current market. Ayoub colours the conversation with a tonne of stocks, so there's sure to be something in here for everyone.  Note: This episode was recorded on March 21, 2023.    Timestamps 1:30 - Global banking crisis 3:20 - Moral hazard in equity markets 6:50 - Where do bank deposits go? 10:15 - The hole left by Credit Suisse 11:20 - Political risk is exploding 15:00 - Doubling down after big hits 17:00 - The companies that make it into WAM Leaders  22:45 - Finding opportunities in beaten-down sectors 25:30 - Spotting inflexion points in markets 30:00 - Hunting for defensive quality 34:00 - A big win and a big loss 36:30 - The death of the office is overblown

On this week's episode of The Rules of Investing, Livewire's David Thornton sits down with Alan Kohler AM, one of the country's preeminent business journalists.  Alan first cut his teeth in 1969 as a cadet at The Australian. From 1985 and 1988 he served as editor of the Australian Financial Review, and was editor of The Age from 1992-1995. In 2007, together with Robert Gottliebsen and Stephen Bartholomeusz, Alan founded Australian Independent Business Media, publisher of Business Spectator and Eureka Report. In 2016, after selling the business to News Corp, Alan founded The Constant Investor, which was sold on to Investsmart.  In a case of full circle, Alan now once again writes for the Eureka report. He also pens a regular column for The New Daily, hosts The Money Café (with Alan Kohler), and you’ll still find him in your living room reading the finance on the ABC.  In today’s episode, Alan why the RBA has become too hawkish (and the consequences of it being so), the overhaul needed at the Reserve Bank of Australia (RBA), and his views on funds management. Note: This episode was recorded on March 7, 2023.    Timestamps 2:34 - It's all in the hands of the RBA 5:00 - Elevated inflation isn't ideal, but it's ok 5:30 - All roads lead to the inflation target 8:30 - Renovating the central bank 12:20 - What is guidance, anyway? 15:30 - Should Parliament carry its weight? 19:30 - What is priced into equity markets? 21:35 - What to look for in an actively managed fund 23:35 - What is a reasonable net return from a balanced fund? 24:50 - The role of ETFs in the portfolio

The Smorgon family is one of Australia’s great wealth building stories. The family emigrated from Ukraine in 1927, opening a Kosher Butcher shop in Carlton soon after. Through the 1930s, the family expanded into wholesale meat and canning industries and, by the time the decade was up, were exporting meat and canned fruit goods to the United Kingdom. Victor Smorgon AC and the family established Smorgon Consolidated Industries in 1942, and this is when things really started to take off. In the 50s, the family added paper and packaging businesses to their repertoire, while the 80s saw the addition of a glass and plastic packaging company. But it was the Steel industry where the Smorgon family displayed its appetite and aptitude for disruption, with Smorgon Steel going on to become the country’s largest vertically integrated producer of steel and steel products. In 1995, with a heavy heart, Victor and the family divested Smorgon Consolidated Industries. In its place came Victor Smorgon Group, which is today one of Australia's premier family offices.  In today's episode of The Rules of Investing, Livewire's David Thornton sits down with Peter Edwards – the late Victor’s grandson and CEO of Victor Smorgon Group.   We discuss: The Smorgon family’s flair for disruption The way a family office invests, and The multi strat fund that has recently opened its doors to outside money.   

Today’s guest on The Rules of Investing will be very familiar to subscribers of Livewire.  Christopher Joye co-founded Coolabah Capital in 2011, and it's since grown to house about $7 billion in funds under management. Coolabah is a leading active credit alpha manager, with 28 portfolios across institutional and retail mandates.  Chris has storied history analysing Australia’s property market. In 2008, when the world was in the throes of the GFC, the Australian Government ploughed $15 billion into a policy proposal developed by Chris to provide liquidity to the Australian residential mortgage backed securities market. He also founded research and investment group Rismark International. While there, he designed Australia’s first “quality-controlled” house price indices, the IP for which is used to this day by Corelogic. In today’s episode, we dive into the RBA’s latest rate decision, the dire outlook for Australia’s housing market, and how Coolabah generate returns by exploiting mispricing in the bond and cash markets. Along the way, you'll get a front row seat into the inner workings of an active bond fund.  Chris also spins a yarn about the time he challenged GMO's Jeremy Grantham to put his money where his mouth is.  Timestamps 2:30 - The RBA hikes rates to a 10 year high 6:00 - Pain on the way for the Aussie household 10:00 - A problem in the RBA's models 12:50 - Housing to fall by 30% 18:55 - Maintaining central bank credibility 22:00 - Zombie haunt the ASX 26:00 - Wait for the risk-free rate to do its work 27:26 - Challenging GMOs Jeremy Grantham 38:30 - How to short the housing market 31:30 - Hunting for mispriced bonds 38:00 - The inefficiency of the over-the-counter bond market 41:20 - How Coolabah builds its portfolios 46:00 - Navigating 2022 48:00 - Choose your hedges wisely 57:00 - How the NSW Government becomes a hedge fund 59:30 - The best value in bond and cash markets Note: this episode was recorded on February 8, 2023.   

If there's one group of people who cop a lot of flak in financial markets, it's central bankers. Whether you believe they get too much or too little of it, they're the ones who print the money and make decisions that influence the wallets of billions of people. That was particularly true in 2022, as many on the economic spectrum were caught unawares by the surge in inflation (and its persistence thereafter). And depending on which central bank you most closely watch, they may also provide intentionally vague answers - or at least, avoid giving the direct and certain feedback you desire.  A beautiful example of this stems from Federal Reserve Chairman Jerome Powell. In his post-decision press conference last week, Powell argued "certainty is not appropriate". In layman terms, he's simply saying that singular data prints are not Gospel, even if financial markets may see otherwise. Now, at this most crucial time in financial markets, EFG Bank Chief Economist Stefan Gerlach has granted us an exclusive interview about the state of the global economy and what central banks are doing as a result.  Gerlach was the Deputy Governor of the Central Bank of Ireland between 2011 and 2015. As part of this role, he also sat in on the meetings of the European Central Bank under its former President Mario Draghi.  You can read an edited summary below:  https://www.livewiremarkets.com/wires/why-this-ex-central-banker-fears-a-second-and-even-bigger-mistake    Timecodes:  1:00 - Why were central bankers caught so off guard by the inflation surge? 3:38 - Could central bankers have better forecast this mess? 4:51 - Did central banks react quickly and forcefully enough to avert a recession? 7:29 - Would you have handled things differently if you were still in your old role? 8:08 - What is the risk central banks will make a second big mistake? 11:17 - What advice would you give investors who want to understand central bank messaging better? 16:46 - Will the Eurozone avoid a deep recession? 18:42 - Will China’s reopening save Australia from the global recession? 20:12 - How has your asset allocation strategy changed? 23:47 - What’s one macro theme investors are not talking about enough?

We’ve got a slightly different episode for you today on The Rules of Investing. A departure from the norm! A lot has been said about the change from growth investing to value investing. This shift has been easy to see in aggregate. In 2022, the MSCI world growth index was down 29.05%, compared to just -6.5% for the MSCI Value index. But indices are just that - aggregates. They do little to explain the why behind the what.  Why has this shift occurred? What signals should investors watch? How should we interpret these signals? And what traps lie in weight to catch out investors? In short - how does the stock market actually work? To answer these questions and more, we're joined by Dr Philipp Hofflin, Portfolio Manager on the Australian Equity Team at Lazard Asset Management. Phil's an expert in market bubbles - how they grow and, importantly, how they burst. So he's the perfect guest to break it all down.  (He also happened to be the most popular ROI guest in 2022).   Note: This episode was recorded on Monday January 30, 2023.  Timestamps 3:20 – “The central bank always wins” 5:15 – The most striking US market change since last September 8:00 – Why 2023 will be a tough year, but less so for Australia 10:30 – Recessions are almost always unexpected – and what this means for investors 11:00 ­– Will the Fed’s slowing of rate hikes flow onto RBA 14:00 – The normalisation of equity valuations is only halfway through 17:00 – 80% of market volatility is driven by noise – only 20% by fundamentals 28:30 – The surprising reason Value always beats Growth 36:00 – Why migrations are so important for Value portfolios 39:00 – How Lazard ascribes value to companies 42:00 – A case study of James Hardie (ASX: JHX)