• Why is holding cash in the current market valuable? Read my most recent article for the Australian here

Montaka, three years in

 

Montaka, three years in

Our Montaka strategy passed its three-year anniversary on June 30 2018 and we are delighted by the results we have delivered our investors to date. In this week’s video insight Andrew discusses how Montaka achieves upside as well as reduces the negative impact from market downturns.

To learn more about the strategy, please click here.

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Andrew Macken is the Chief Investment Officer of the Montaka funds and the Montgomery Global funds. He established MGIM in 2015 in partnership with Montgomery.

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.

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4 Comments

  1. No other fund manager does a better job of communicating with their investors than you guys at Montgomery Funds. I see it as a very powerful selling point. Also I am very happy to see your short portfolio increasing into this market fwiw. Would not mind an update on your thoughts on the AUD when you write your next post as I see this as the greatest risk to any Australian investor right now.

    • Hi Peter,

      Don Stammer wrote the following thoughts…

      Looking ahead for the Aussie dollar

      1. Commodity prices

      With commodities contributing three quarters of our exports of goods and services, our dollar is often seen as a ‘commodity-based currency’. Thanks to the strengthening, and synchronised, economic growth across the global economy, the index of our commodity prices has increased by 10% in the past year, and helped support the Aussie dollar as interest rates in the US rose.

      The pace of economic growth in China is the dominant influence on our commodity prices, especially the prices of the bulk commodities we export. Any marked weakening in Chinese growth – real or imagined – will likely drive the Aussie dollar lower.

      In my view, economic growth in China is likely to slow, but to a still-respectable rate of 5%-5.5% over the next couple of years. Bad debts are hurting property developers, some regional governments and the shadow banks. But China is managing its restructuring away from heavy industry towards services and consumption reasonably well. And economic management is always easier in countries with big reserves of foreign exchange. Indeed, China seems to be beginning another round of policy easing.

      At times, market sentiment towards the Australian dollar will over-play the negatives in China’s economic prospects. In particular, further escalation in the trade war will also cause concerns, at times exaggerated, of both a global currency war and an early recession in China. Financial markets experience more fake crises than real crises.

      Of course, the US economic cycle in the US also affects the global cycle in commodity prices. The US is now in the ninth year of its cyclical upswing, which has been running at an unusually slow pace, and is now receiving a late-cycle boost from tax changes and, soon, from the larger budget deficit, equivalent to 5% of US GDP.

      2. Interest rates

      A year ago, the US cash rate was 1.25% and our cash rate was 1.5%. Now, the US cash rate is 2% while ours has stayed at 1.5%.

      Market expectations are that the US cash rate will be raised by three, four or five times over the coming 18 months, as inflation moves above the Fed’s target of 2% and as the Fed moves further to ‘normalise’ its policy settings. In my view, expectations for the number of changes in the US cash rate are more likely to be scaled down over the coming year than be stepped up.

      With our economy having more slack and our inflation more quiescent, Australia’s cash rate is expected to stay where it is until mid-2019 and then move gradually higher.

      Any widening of the gap in cash rates between the US and Australia will attract a lot of attention in financial markets and at times likely lead to widespread views the Australian dollar will move down sharply.

      3. Other important influences

      From time to time, two other big influences affect the Australian dollar.

      The Aussie dollar generally weakens against the US dollar when the latter strengthens against the euro and the yen. And our currency usually gains against the greenback when the US dollar falls in value against the euro and the yen. Currently, the general expectation in the market is the US dollar will trend higher against the other major currencies over the next year or two, causing some further slippage in the A$/US$ rate.

      Secondly, since the global financial crisis, some hedge funds have expected Australia to experience a severe slump in house prices and massive write-downs in banks’ loan books, causing among other things, the Aussie dollar to crash.

      In my view, these fears are exaggerated, particularly while the Australian government retains its AAA credit status and stays on course to return its budget to balance over the next couple of years.

      Don Stammer has been involved with investing since 1962, variously as an academic, central banker, investment banker, fund manager, and company director. He writes a weekly column on investments for The Australian. This article is general information and does not consider the circumstances of any individual.

      You can read the full article at https://cuffelinks.com.au/aussie-dollar-not-collapsed/

      • Greg McLennan
        :

        “In my view, these fears are exaggerated, particularly while the Australian government retains its AAA credit status and stays on course to return its budget to balance over the next couple of years.”

        Well, that is an interesting point. I expect that Australia will retain its AAA credit rating for the time being, but I think the chances of the budget being balanced in the next couple of years are precisely zero. If the Libs were inclined to do so, they would have done it. When (I assume) Labor get in at the next election, it is even less likely. What would that then do to the equation?

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