Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
The tables have turned after quarter from hell
“Patience is a virtue” may well be the best way to explain the performance of the Australian sharemarket in the March quarter. As the rest of the world, but particularly fast-growing technology stocks listed on the NASDAQ entered free fall, the local S&P/ASX200 benchmark bucked the global trend to deliver a return of 2.2 per cent.
Long seen, even by this author, as somewhat of a backwater on the international stage, the dominance of financials, materials and energy within the Australian sharemarket turned out to be an unexpected virtue. The threat of interest rate increases saw bond yields surge across the world, nowhere more so than Australia, where yields actually exceed those of the US, despite a decidedly slower hiking cycle ahead.
Naturally, the result was a selloff in almost every single company listed on the ASX that either didn’t make a profit or was trading on a comparatively high valuation. For instance, BNPL player Zip Co fell more than 60 per cent in the March quarter, with Pointsbet and Appen not far behind falling around 40 per cent each. The selling pressure even extended into the big names like Block, Xero and Fisher & Paykal, despite these companies being among global leaders in their respective industries.
These conditions would typically make a solid hunting ground for active managers, something evidenced by the massive dispersion in returns. For instance, the top performing Lazard Australian Equity fund gained 15.8 per cent during the quarter, and the worst Bennelong Australian Equities strategy fell 14.4 per cent over the same period. That is a more than 30 per cent top to bottom difference, which I would suggest is incredibly rare.
The ‘winners’ during the quarter had one thing in common, a traditional value approach and significant weightings to commodities, energy and last but not least, financials. Australia was in the unique position that most of our technology companies are smaller parts of the index, and the few global leaders we have operate in the commodities sector which saw record prices amid the Russia-Ukraine-led disruption to supply.
Lazard’s value-oriented focus meant both BHP and Rio Tinto were among the top holdings and has seen the group close the gap on the more popular names like Hyperion and Bennelong, with the former falling 13.6 per cent as stock specific selloffs hit their portfolio. There were many familiar names among the top performers including Paul Moore’s PM Capital, Martin Currie and Maple Brown Abbott, some of which were considered to have missed the boat on growth.
It remains to be seen whether the strong performance of value was causation or correlation, meaning was it just good timing for a commodity and energy price spike, or is value investing finally back?
