Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Currency key to investability, as shorts pay off
Among the most interesting comments I’ve heard thus far in 2022 was from an actively managed global fund manager who said something along the lines of “the challenge in 2022 won’t be in outperforming the index, but rather in generating a positive return.” This was evidenced by renowned value manager Platinum’s quarterly results, released last week.
Having benefited from patience and conviction, the end result for the financial year was around 2 per cent in outperformance terms, but still a net negative return. Whether this or a more general risk-off sentiment was the driver of the $304 million in outflows during the quarter, we will never know, but the challenge remains.
Writing in its latest quarterly update, the group flagged its short positions as being among the biggest contributors to the relative outperformance, although most of these are kept under wraps given the sensitivity. On the opposite side of the portfolio, a long-held preference for China paid-off in the final quarter with companies including Trip.com and ZTO Express benefiting from an about-face by the Chinese Government.
The group remains wary despite the recent selloff and repricing of risk assets, with the net invested position falling from 62 per cent to 56 per cent and short positions cut from 28 back to 20 to “reflect our concerns regarding the impact of rising interest rates on what has been a very speculative stock market.”
In his thought piece, titled “A Garden Variety Correction of Much More?” co-CIO Clay Smolinski flags the importance of context and considering the recent repricing in comparison to “where we came from,” which was a “bubble environment” predicated on the concept that rates would stay lower for a very long time. The risk, therefore, may be that the current “20 per cent fall is just skimming-off the euphoria that was surrounding markets.”
There is a tendency as a ‘value,’ or any other type of investor for that matter, to “bottom-fish,” with Smolinski suggesting that while opportunities are becoming more plentiful, they “aren’t as plentiful as you may think” due to the euphoric starting position.
Shifting to the positives, it is clear that for Platinum the focus remains on Asia. The Chinese market “is in a very interesting space” he says, with most indicators suggesting the economy and markets may be bottoming-out. There is “clear value in China,” but investors are as disinterested as they were during the European Debt Crisis. “It feels like things are starting to turn,” concludes Smolinski.
But the real action is Japan, after a strong period for the fund with the CIO quoting the adage “when Japan is looking pretty cheap as a holiday destination due to the yen, you should also think about buying some assets there.” A key driver of this is currency movements in the emerging markets, with a company like Toyota in “an incredibly competitive position” compared to global players, he says.
