CIO Insights: Times are a-changin'

Hi everyone
As I'm sure you know, this week Anthony Albanese was sworn in as Australia’s 31st Prime Minister following a comfortable win against the Liberals in the Federal election. This is the first time Labor will hold office in almost a decade.
While this win may not have been a surprise, what has surprised many is the extent of the Independents success, most notably the 'Teal' female professionals, who have succeeded in what has traditionally been very blue-ribbon Liberal electorates. Climate change – and what we’re all going to do about it – is clearly a far more important area of concern for voters than the Liberals believed.
To me, patching up the fractured relationship Australia has with China has to be a priority for this Government. Our economy is very dependent on both imports and exports to the region, and it wasn’t that long ago that massive tariffs were placed on Australian wine being sold into China, which caused a big shakeup in the industry. Many companies listed in Australia will do better with an improved relationship with our Chinese neighbours.
Equity markets around the world remain in turmoil. The Dow Jones Industrial Index has just recorded eight consecutive weekly declines. This is the longest streak since the Great Depression. The S&P500 and NASDAQ have had seven straight weeks of falls – the worst since the dot-com collapse in 2001. Stagflation – declining demand coupled with persistent high inflation – seems to be on the front page of most business pages these days. Recession in the US is a distinct possibility. In fact, Goldman Sachs believes there is a 35% chance of it happening in the next two years. Last week, we saw the giant consumer staples businesses, Walmart and Target, report lower than expected earnings due to higher input and logistics costs. This saw their share prices hit by 11% and 25% respectively in a single trading session. They are large falls for any business, but particularly so for large, supposedly stable consumer staples.
It is now clear that inflation will persist longer, and interest rates should have been raised sooner than the Central Banks previously thought. This is spooking investors globally, but especially investors in companies developing technologies that are yet to be profitable.
Our fund managers have been reporting a similar message: that whilst the fundamental theses behind many of these companies remain sound, investors have pared back their exposure to disruptive technology companies. As reported previously, our conference portfolio was overweight many of these companies. It is our intention to have a broader cohort of managers present their highest conviction ideas at our next conference in November, so that investors get exposure to a more balanced set of companies who aren’t exposed to the same risk.
The HM1 share price is now trading at a large discount to its Net Tangible Asset value. To recap, the pre-tax NTA we report to the ASX each week is the sum of the current market value of the shares held in our portfolio plus the cash we hold. On Monday morning, the pre-tax NTA was $2.73 per share. The post-tax NTA of $2.92 includes the net tax liability or benefit assuming our portfolio was sold. The NTA gives investors an indication of the current value of their investment which can be compared to the current share price.
Finally, as a keen golfer, it would be remiss of me not to mention the spectacular comeback by Justin Thomas in the PGA Championship on Sunday afternoon, overcoming a 7-stroke deficit to secure his second Major. This was equal to the largest final round comeback in PGA Championship history! Bravo JT!!


Stay safe

Rory Lucas
Chief Investment Officer
Hearts and Minds Investments Limited

Reminder: these are simply my general views and should not be taken as investment advice


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DISCLAIMER: this communication has been prepared by Hearts and Minds Investments Limited (ABN 61 628 753 220) and may contain general information relating to HM1 securities. The general information should not be considered financial advice. HM1 is not licensed to provide financial product advice. The information does not consider the investment objectives, financial situation, or particular needs of any individual. The information is current as at the date of preparation and is subject to change. HM1 does not guarantee repayment of capital or any rate of return on HM1 securities. An investment may achieve a lower-than-expected return and investors risk losing some, or all, of their principal investment.  Past performance is not a reliable indicator of future performance. This document may not be reproduced or copies circulated without prior authority from Hearts and Minds Investments Limited.

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