Funds Management in Australia

May 13th, 2016

The business of funds management, and in particular the debate over vertical integration of advice, administration and management, has gone quiet after Labor’s Future of Financial Advice (FOFA) was ushered out in March 2016[1]. After a week I have spent poring over bank results and seeing how involved they are in the business of managing Australia’s investments, this week we are going to have a closer look at the funds management landscape in Australia, and in particular the dominance by the largest players of this A$2.6 trillion industry.

Read more here.

Banks Report Card 2016

May 6th, 2016

Over the last week investors had a wild ride with bank reporting season, compounded by a somewhat surprising rate cut on Tuesday. Indeed Tuesday’s share price moves in ANZ Bank were some of the wildest I have seen over the past 18 years of covering companies, ANZ opened down -4% as investors were dismayed by the headline numbers before finishing up +5.6% on the back of a strong performance at the results presentation by CEO Elliot and a 0.25% cut in the rate at 2:30pm. These are very unusual intraday moves for a company with a market capitalisation over $70 billion. The 1.75% interest rate represents the lowest official cash rate in Australia since James Cook turned up at Botany Bay in April 1770.

In this piece we are going to look at the common themes emerging from the banks’ results, differentiate between them and hand out our reporting season awards to the financial intermediaries that grease the wheels of Australian capitalism.

Read more here.

Avoiding Torpedo Stocks

May 2nd, 2016

Last week McGrath (ASX: MEA), an integrated residential real estate services company (which we don’t own) saw a 31% decline in the company’s share price after the company downgraded estimates for future earnings. This was very painful for investors in this recently listed company, but for us was not particularly surprising.

In this piece we are going to look at the mechanisms we use to filter out companies that are more likely to have a higher chance of issues in the future to improve performance and reduce heartache. This exercise is based on the position that removing a few “losers” from the long only portfolio is more consistently beneficial to a portfolio’s performance than focusing on picking the next Aconex (up 207% in the last year). As we can also short stocks this process is also a component of what we use to identify “torpedo” stocks. Also like most investors I am somewhat irrationally loss averse[1] in that I strongly prefer avoiding losses to acquiring gains, even when the probability weighted outcome is the same. One of the mechanisms we use to filter out noise and narrow down our investment universe is our quality filter model (QFM).

Read more here.

Investment Philosophies Part II

April 15th, 2016

Almost every month the financial press will publish an article lauding the top performing fund manager over the previous 12 month period; generally accompanied by a picture of the manager looking quite pleased with themselves in an expensive suit, together with an after match report detailing which stocks they had in their portfolio that allowed them to outperform their peers. The assumption underlying these articles is that all equity funds are managed using the same investment philosophy and that a manager’s outperformance is solely due to their skill.

In the piece Investing Styles Part 1 we looked at the four basic investment styles (index, growth, value and quality). In this week’s note on investment styles we are going to look at the market conditions under which each style tends to outperform, as no single investment style outperforms in every market condition.

Read more here.

REIT Resurrection/Roll-over – What You Need toKnow

April 14th, 2016

Last week we looked at Cracks within REITs, which showed some of the worst performing REITs on the ASX being the companies dependent on development profits or trading profits. This is of little surprise to some, especially after the Australian Bureau of Statistics announced last month that the Sydney property market fell in the December quarter of last year – that was the first fall in the Sydney property market since 2012.


Read more here.

Investing Styles

April 4th, 2016

Investors looking for a professionally managed Australian equity portfolio face a dizzying array of options. The February Morningstar survey looked at 123 different institutional fund managers delivering Australian equity portfolios and this number expands further when you include model portfolios and stock lists offered by stock-brokers, asset consultants and investment newsletters. The individual stocks in this enormous range of portfolios are selected and then blended into Australian equity portfolios based on a range of investment philosophies or investment styles.

In this week’s piece we are going to look at the different investment styles used to manage equity portfolios and the investing foundations upon which these styles are built.

Read more here.

AZZG update

April 4th, 2016

Aurora Funds Management Limited (“Aurora”) as Responsible Entity of the Aurora Global Income Trust (“the Fund”) and the Aurora Absolute Return Fund (“the Fund”), refers to its voluntary suspension from trading and recent announcements in relation to its investment in Antares Energy Limited Convertible Notes (“the Notes”).

The Noteholders meeting was held on 31 March 2016, however, the vote did not proceed and the Noteholders meeting has been postponed until 29 April 2016.

Aurora advises that its voluntary suspension is expected to remain in place for an additional period of up to one month or until further information becomes available to us.

We will continue to monitor the situation and provide any additional information on any material changes in due course through ASX announcements.

AFR Coverage

March 31st, 2016

Bad debts spook bank investors by Jonathan Shapiro.

Read more here.

Short Sellers

March 24th, 2016

Eye of newt, and toe of frog, Wool of bat, and tongue of dog, Adder’s fork, and blind-worm’s sting, Lizard’s leg, and owlet’s wing, For a charm of powerful trouble, Like a hell-broth boil and bubble. Double, double toil and trouble; Fire burn, and caldron bubble.  Shakespeare’s Macbeth

The financial press frequently paints the picture of hidden cabals of short sellers conspiring together to drive down a stock, causing unrealised losses to retail investors and pain to executives whose company’s stock have been sold short. Whilst short-sellers are frequently derided as vultures, criminals, pessimists or un-Australian (or un-American), in reality shorting stocks is a hard, stressful and often lonely way to make money in the market. Short selling allows an investor to profit from taking a contrarian view.  In this week’s piece we are going to look at short-selling shares a hot topic given the offshore shorting in February of the Australian banks.

Read more here.

Takeovers: What would “The Gambler” do?

March 14th, 2016

Analysing the lyrics to country music songs can strangely provide insight into managing money and in particular in dealing with the game theory that investors must analyse when faced with a takeover offer. Recently we have been receiving quite a few requests from clients about the takeovers of Asciano and Investa Office Trust asking about what to do in various takeover situations.  In this Kenny Rogers themed piece we are going to look at the different kinds of takeovers and the strategies investors should employ when a stock they own receives a takeover bid; namely “hold ‘em”, “fold ‘em” and know when to walk away and know when to run”.

Read more here.

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