Investor Insights

This week, the ABS data has begun to paint a picture of a more subdued economic environment, where we are starting to see a slight drop in inflation, household savings and Gross Domestic Product (GDP) in the data.

Looking for a higher rate of income? Who isn’t? But are bonds best? For decades investors have been told bonds provide uncorrelated ‘ballast’ for a portfolio of shares whilst generating much-needed regular income. The idea has been that shares offer growth, with bonds also offering diversification and stability.

After a 4. 65 per cent increase in interest rates this past year, why isn’t the U. S. economy tanking?  And why aren’t retail sales plummeting? One reason, perhaps, is that during the pandemic, many home buyers locked in fixed-rate 30-year mortgages at ultra-low rates, and they are thus unaffected by recent rate rises.

If you’ve travelled lately and felt stung by the big increases in airfares and accommodation prices, you might think about ‘revenge investing’ in some travel companies. Because, since the post-pandemic re-opening, many – like Flight Centre and Qantas – have seen a big increase in patronage, profits and share price.

Given this week’s quiet data release cycle, we thought we would explore some methods of funding that can be used by lenders we work with and to give context to where we participate in capital markets.

Seven Group Holdings (ASX:SVW) is a diversified company with businesses and investments in industrial services, media and energy. We particularly like the company’s exposure to mining services and infrastructure investment – via WesTrac, Coates Hire and Boral – and its high quality management. Together, these factors should continue to drive earnings and share price performance over the long term.

  In this video Scott speaks with Gary Rollo, portfolio manager of the Montgomery Small Companies Fund on an update on small caps reporting this results season. There’s been more beats from an earnings point of view than misses, but that’s looking backwards.

If you needed more convincing that Australia’s retailers are doing it tough, take a look at the HY23 result from manchester and homewares retailer Adairs (ASX:ADH).   ‘Weak’, ‘disappointing’, ‘a miss’.   That’s how various commentators described the result.

Financial media is replete with stories observing the fastest increase in interest rates in recent memory, the end of the declining interest rate era, how the fastest rise in short-term rates is inverting the yield curve (2-year bond yields higher than 10-year bonds) and predicting a recession, rising rates are causing the property market to collapse, and how causal inflation…

With equity markets steaming ahead, there’s no shortage of people calling this a ‘dead cat bounce’ and, by implication, predicting another market correction. History, however, suggests that 2022 was simply an isolated poor year for markets, and that we have now returned to ‘normal programming’. If I’m right, then 2023 could be a good year for investors.

The past year posed considerable challenges for equity investors, including runaway inflation, a rising interest rate environment, geopolitical tensions, and the lingering effects of the pandemic. The confluence of these headwinds – and a lack of positive catalysts – roiled market sentiment, resulting in most equity analysts adjusting their expectations for corporate earnings growth substantially lower.

Over the last six months, we have provided a growing list of arguments favouring investment in equities. We have shown the compression of P/E ratios of 2022 rendered high-quality companies cheap, and we’ve revealed arithmetic demonstrating investors will receive a return commensurate with the earnings growth rate of the company they buy even if stocks don’t become popular again.