CIO Insights: Ready for lift-off

Hi everyone

After the wettest winter in many years, and what will no doubt end up being the wettest year on record, hello SPRING!

As you have seen in many of my missives, I believe the biggest issues facing investment markets right now are the COVID pandemic and the ongoing geopolitical tensions between Russia and the Ukraine, as well as China and Taiwan. These issues have had a dramatic effect on supply chains for essential goods and services, which has seen inflation rise dramatically, which in turn has led to Central Banks around the world reacting according to the textbook, by raising interest rates.

I deliberately wanted to wait until now to release this edition of my CIO Insights, so that it could coincide with the launch of the 2022 Sohn Hearts & Minds Investment Leaders Conference being held in Hobart, Tasmania on Friday 18 November. You may well have seen the coverage in the press last week, but if you haven’t - here it is in a nutshell…

Have you heard of Bill Browder?? Well, he is one of our headline acts this year, as well as being one of Russian President Vladimir Putin’s fiercest critics. And he’s going to appear alongside award-winning foreign correspondent, Luke Harding, who was the Guardian’s Moscow bureau chief from 2007-2011 and is currently reporting from the frontline in Kyiv.

If anyone knows Russia, it’s Bill. He founded Hermitage Capital, which at one time was the largest foreign portfolio investor in Russia. As a shareholder rights activist, he took on many large Russian companies in the early 2000s, fighting large scale corruption, which was delivering billions of dollars into the hands of Russian oligarchs. Needless to say, this wasn’t taken to kindly, which quickly led to him being refused entry into Russia, deported to the UK and declared a threat to Russian national security.

Bill is also a best-selling author. His book Red Notice, which I personally found ‘un-put-downable’ and more recently Freezing Order are both must read books if you ask me. His insights will simply be fascinating.

We’ve also announced some of the 2022 stock presenters. Again, as I’ve mentioned in the past, we have put a far more rigid process in place for our manager selection this year to better balance the risks in the portfolio in the rapidly evolving macroeconomic environment we find ourselves in 2022.

Our top conference performer over the last four years, Nick Griffin from Munro Partners, will be back with his latest idea, as will Tim Carleton from Auscap Asset Management. Both of these managers have enviable track records in their previous appearances at Sohn Hearts & Minds conferences, and we feel lucky that they are able to come back in 2022. We also have two speakers from our suite of core managers – Peter Cooper himself from Cooper Investors, and on debut, Tim Elliot from Regal. Our other announced (so far – there will be 12 stock speakers in total) are also making their debut on stage – Catherine Allfrey from WaveStone Capital and Bob Desmond from Claremont Global. As with all our speakers, our new additions have been around for a long time, have impressive track records, and are keen to deliver a stock recommendation to our audience. We feel privileged to have these new fund managers join the HM1 family!

In the 2021-22 Annual Report released last week, we were proud to announce the latest six-month donation from HM1 to our medical research beneficiaries, which amounted to $5.9 million. This brings the total donation from the Hearts & Minds Group (the Listed Investment Company plus the conference) since inception to over $40 million. As you know, the first conference was held in 2016, while the LIC was only formed in November 2018 – so this is truly an incredible amount in a relatively short period of time.

A brief note on how I think markets are behaving right now. Inflation fears have gripped everyone. How much higher inflation goes is, frankly, anyone’s guess. Central banks generally fight inflation by raising interest rates. This should curb consumer spending, by making it more expensive to borrow. That’s all in the textbook. Whether it affects the supply side inflation we have seen since 2020 is another question. Nevertheless, raising interest rates will stifle demand, and too much of that can send an economy into recession. And that is exactly what Central banks are juggling right now – the pain of inflation vs recession.

The best indicator to look at is the bond market. The US 10-year bond shows the bellwether interest rate – and if that is falling, then the bond market is telling us that inflation is under control for now, and so equity markets might be ok (from mid-June to late July, this rate fell from 3.5% to 2.8%, and markets rallied c10%). For those of you who, like me, want to go deeper, try looking at the 2-year bond rate compared to the 10-year bond rate. If the 2-year is higher than the 10-year, then bond markets fear recession – this is what an inverted yield curve means. For what it’s worth, right now the 2-year is about 30 basis points higher than the 10-year bond.

We’ll be announcing more conference speakers, both keynote and stock, in the coming weeks, while the HM1 monthly investment report should be released later this week.


Until then, 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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