Don’t invest by looking in the rear-view mirror

Don’t invest by looking in the rear-view mirror

In this week’s video insight David reviews how the tightening of official cash rates in 2022 impacted markets and discusses why you shouldn’t invest by looking in the rear-view mirror. Companies with highly reliable cash flow and demonstrated resilience will likely be the winners in an environment of slower economic growth.

Transcript

David Buckland: 

Hi, my name is David Buckland, the CEO of Montgomery, and welcome to our first video insight for 2023.

Over the past year, each of the five Central Banks of New Zealand, the US, the UK, Canada and Australia tightened their official cash rates on around eight separate occasions to an average of nearly 4.0 per cent from the historical low levels of close to zero.

This came on the heal of inflationary expectations hitting 40-year highs for many economies; the war in the Ukraine seeing the price for gas, oil, food, fuel and fertiliser spike; and a severe sell-off in the bond market—where US ten-year treasury bonds jumped from 0.5 per cent in mid-2020 to recently breach 4.0 per cent.

Share markets mostly reacted in a negative fashion particularly with longer-dated growth stocks, as observed by the 33 percentage point decline in the US-tech heavy Nasdaq over 2022. 

As investors, however, we can’t drive the car with our eyes on the rear-view mirror, even in the current murky conditions.

The consensus view is that economies are slowing, and inflationary expectations are on the decline.  Nevertheless, one or two more increases in Central Banks’ official cash rates remain on the cards.

The mood is guarded, buyers are hesitant, risk aversion is rising, start-up businesses and loss-making companies are experiencing much tougher lending conditions, companies in distress are increasing and the expectation for recessionary conditions in 2023 have become consensus.

With the expectation that a lot of this negative news is understood by the market, many share markets recorded a nice rally in recent months. Over the December 2022 Quarter, for example, the Australian market and the Global market, in A$, were up more than 9 per cent and 4 per cent, respectively.  

And despite all the doom and gloom surrounding Australian residential property prices, especially with the wave of fixed-rate mortgages switching to the variable rate, it seems we may benefit from China’s abandonment of the stringent zero-COVID policy, and the re-opening of its economy. Like the Global Financial Crisis in 2008-2009, Australia may again experience the “pull-up” effect from China, with many of our primary industries continuing to enjoy very solid commodity prices. 

Those companies with highly reliable cash flow and demonstrated resilience will likely be the winners in an environment of slower economic growth.

And for those requiring monthly income, the Aura High Yield SME Fund—which is designed for wholesale investors with a minimum initial investment of $100,000—is worth considering. In the 65 months since inception (1 August 2017) to 31 December 2022, it has paid out monthly income ranging from 0.60 per cent to 0.93 per cent, and an average of 0.77 per cent. For the 12 months to 31 December 2022 the annual return, assuming reinvestment of income, was 8.31 per cent, after expenses. 

Montgomery also assisted in the launch of the Aura Core Income Fund in October 2022— which is designed for retail investors with a minimum initial investment of $25,000. Its objective is to beat the RBA cash rate by 3.5 per cent to 5.5 per cent per annum, on a consistent basis.

That’s all I have time for this week. Thank you for your support, and please continue to follow us on Facebook and Twitter.

If you would like to learn more about the Aura Core Income Fund, please visit the fund’s web page to learn more:  Aura Core Income Fund

If you would like to learn more about the Aura High Yield SME Fund (wholesale clients only), please visit the fund’s web page to learn more: Aura High Yield SME Fund

You should read the relevant Product Disclosure Statement (PDS) or Information Memorandum (IM) before deciding to acquire any investment products.

Past performance is not an indicator of future performance. Returns are not guaranteed and so the value of an investment may rise or fall.

This information is provided by Montgomery Investment Management Pty Ltd (ACN 139 161 701 | AFSL 354564) (Montgomery) as authorised distributor of the Aura Core Income Fund (ARSN 658 462 652) (Fund). As authorised distributor, Montgomery is entitled to earn distribution fees paid by the investment manager and, subject to certain conditions being met, may be issued equity in the investment manager or entities associated with the investment manager.

The Aura Core Income Fund (ARSN 658 462 652)(Fund) is issued by One Managed Investment Funds Limited (ACN 117 400 987 | AFSL 297042) (OMIFL) as responsible entity for the Fund. Aura Credit Holdings Pty Ltd (ACN 656 261 200) (ACH) is the investment manager of the Fund and operates as a Corporate Authorised Representative (CAR 1297296) of Aura Capital Pty Ltd (ACN 143 700 887 | AFSL 366230). 

You should obtain and carefully consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the Aura Core Income Fund before making any decision about whether to acquire or continue to hold an interest in the Fund. Applications for units in the Fund can only be made through a valid paper or online application form accompanying the PDS. The PDS, TMD, continuous disclosure notices and relevant application form may be obtained from www.oneinvestment.com.au/auracoreincomefund or from Montgomery.

The Aura High Yield SME Fund is an unregistered managed investment scheme for wholesale clients only and is issued under an Information Memorandum by Aura Funds Management Pty Ltd (ABN 96 607 158 814, Authorised Representative No. 1233893 of Aura Capital Pty Ltd AFSL No. 366 230, ABN 48 143 700 887).

Any financial product advice given is of a general nature only. The information has been provided without taking into account the investment objectives, financial situation or needs of any particular investor. Therefore, before acting on the information contained in this report you should seek professional advice and consider whether the information is appropriate in light of your objectives, financial situation and needs.  

Montgomery, ACH and OMIFL do not guarantee the performance of the Fund, the repayment of any capital or any rate of return. Investing in any financial product is subject to investment risk including possible loss. Past performance is not a reliable indicator of future performance. Information in this report may be based on information provided by third parties that may not have been verified.

MORE BY DavidINVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.