FYI | Mar 23 2016
By Peter Switzer, Switzer Super Report
Sir Isaac Newton made famous a wonderful observation on the insights that are delivered to us along the way: “If I have seen further, it is by standing on the shoulders of giants.”
And on Wednesday in Melbourne and Thursday in Sydney, we held the Switzer Investor Strategy Days and yep, I was hanging out with giants.
The Switzer giants were Charlie Aitken (Aitken Investment Management), George Boubouras (Contango Asset Management), John Julian (AMP Capital), John Murray (Perennial Value Management), Michael Blake (Centuria Capital), David Poppenbeeck (K2 Asset Management), Kris Walesby (Head of ANZ’s ETFS) and, of course, my old mate, Paul Rickard.
Of course, none of these people consider themselves as giants, well maybe Charlie might, but they are all very insightful professionals and considering our feedback from the events, they certainly delivered in a giant way.
The first insight all investors have to consider was the name that we gave the day: “Australia for income. International for growth.” This was first put forward to us all by Charlie last year and while he doesn’t claim he patented the idea, he certainly marketed it better than most.
The S&P 500 has largely outperformed our own S&P/ASX 200 index. Considering our own stock market represents about 2.5% of the world stock market, it does make sense that we should be open to the idea of investing overseas.
Paul made the point that we just don’t have many IT, healthcare and consumer discretionary companies to give our portfolios the oomph it might need — growth-wise — and that’s why going overseas for growth has appeal.
Charlie’s fund has local companies but he has a big exposure to foreign companies from China to the UK and the US but he’s not jumping on the ‘Europe has big potential’ argument bandwagon.
He likes companies inside countries with a single currency, a single central bank and where fiscal policy doesn’t need an 18 country consensus to make it happen and work!
The next insight again came from Charlie, who said his investment decisions were driven by six themes that will drive the structural growth of companies. These included the rise of the Chinese tourist, which is why he likes Star Group locally and other tourism businesses overseas. He thinks Qantas will also be a beneficiary of this trend.
He watches social changes closely. When he drops his kids off to school, he has observed that many of the mums are wearing leisure wear, they’re off to the gym and they’re into healthy life habits, which could be bad for CCL but great for a US company like Fitbit.
Next, the cashless society will be great for the likes of Visa, as we all tap and go and leave this US company a small fee every time we tap!
He invests in companies that are into technology, disruption, superannuation and he loves the notion of monopoly toll bridges.
The theme is clear: these businesses create their own opportunities and some don’t even have any potential threats. Not surprisingly, Charlie likes Sydney Airports and Transurban.
Charlie’s lecture opened our minds to what we should be thinking about to grab growth but then George argued that we should never ignore diversification. He actually threw in the observation that “if you can sleep when stock markets have their one in four bad years, you can be 100% invested in stocks”, but few of us can live with that pressure.
He made the case for the likes of term deposits and bond funds, explaining that bond funds can sometimes underperform term deposits (as has happened recently), but at other times they can make up for some low yield performances.
John Julian and Michael Blake opened our eyes to alternative non-stock investments. John is the investment director and portfolio manager of the Core Infrastructure Fund for AMP at a time when infrastructure is the flavor of the decade, right around the world.
What I liked about this fund was it has both unlisted infrastructure assets and listed ones, which means if the fund manager wants access to a good listed asset it can participate in it but it has the size to buy into private infrastructure deals.
For example, they have bought South Australian (SA) public school assets, which are rented by the SA education system! Personally, I want to increase my exposure to infrastructure and this diversified investment product is worth having a look at.
Performance-wise, since inception, it has been a cash yield of 6.4% and a total return of around 7.5%, but last year it was over 13%. We know the past can’t tell us about the future but given the steady nature of infrastructure, I’ll be looking further at this product.
Michael Blake from Centuria looked at a number of properties his company has syndicated and I know many people who’ve played ball with these guys for good results. The idea of getting a consistent rental yield and then an eventual capital gain when the property sells is pretty appealing. I like these alternative kinds of investment but I always advise that you need to be clear about what can go wrong with these plays. That said, Centuria has a good track record in selecting and managing their properties.
Finally, John Murray and David Poppenbeek reminded me why some of us who run their own SMSF like to put some fund managers into the mix.
John’s Value Shares for Income trust looks for consistent dividend-payers and he’s good at finding companies that we often don’t think about. One was Event Hospitality & Entertainment (EVT) that owns Rydges Hotels, Event cinemas, ski resorts, etc., which not only has healthy dividends but the company is a dividend-grower.
David Poppenbeek of K2 Asset Management looked at the wild and wacky things his team looks at to find value here and around the world. They look at complex relationships between commodity prices, the dollar, the greenback, households and, ultimately, on share prices. He also showed how the strangest information can show up if you look in odd but sensible places, such as The Economist’s Intelligence Unit that showed Australia has five of the most livable cities in the top 20, with four in the top 10!
Like Charlie, David’s team is looking for ideas that are linked to trends that one day will explain higher share prices.
Finally, Kris Walesby explained how ANZ’ constructed its S&P500 Yield Low Volatlity ETF. In simple terms, they have created a process that gives them the 50 highest yielding US companies with the least volatility. And by the way, there isn’t a W-8BEN form to fill out for US taxes!
The most recent result was a yield of 4.2%, while the comparative S&P500 yield was 2.2%.
The bottom line is simple and I have given the same advice to aspirational entrepreneurs who’ve been trying to build their businesses — leave yourself open for new tricks and learn from legends or giants.
P.S. I thought I had five insights but as I wrote and reflected on the strategy days, I realised that there were way more than five insights. Consider the extras a Switzer bonus!
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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