Navigating GDP decline and investment solutions
In this week’s video insight, I discuss Australia’s sluggish economic growth, marked by six consecutive quarters of gross domestic product (GDP) decline per capita – the worst result since the early 1980s, outside of the COVID-19 pandemic. I explore how rising interest rates and increased government spending have fueled inflation and exacerbated the ongoing cost-of-living crisis. I also share my personal investment approach, focusing on the Aura Private Credit Income Fund and the Aura Core Income Fund, which have provided strong returns despite these economic challenges.
Transcript:
Hello, I’m David Buckland, and welcome to this week’s video insight.
Outside of the COVID-19 pandemic, Australia has recorded its slowest rate of annual economic growth since the “recession we had to have” 33 years ago. Worse still, with population growth approaching 2.5 per cent, Australia has experienced the sixth consecutive quarter of GDP decline, on a per capita basis, the worst ongoing result since the early 1980s.
Increasing the Reserve Bank of Australia’s (RBA) cash rate on 13 separate occasions over the 18 months to November 2023 is to blame, but our treasurer has failed to grasp the contribution to the rate of inflation that has come from federal and state government spending. This has moved up to a record 27 per cent of GDP, about 9 per cent of GDP higher than five decades ago when Australia’s population was half the current 27 million people.
None of these numbers are a surprise as inflation-adjusted household disposable income comes under increasing pressure as the cost-of-living crisis bites. On this front, Australia has secured the wooden spoon over the past two years relative to 21 European and North American economies.
To this end, my family and I are pleased to have placed some of our cash-like investments into both the Aura Private Credit Income Fund and the Aura Core Income Fund. Over the year to July 2024, for example, the former has paid out 9.43 per cent (on a cash distribution basis), or an average monthly payment of 0.78 per cent; whilst the latter has paid out 7.60 per cent (on a cash distribution basis), or an average monthly payment of 0.63 per cent. This monthly rate is lower because the Aura Core Income Fund is further up the collateral stack, meaning it has a greater margin of safety.
Investing on a ratio of, say, one Aura Private Credit Income Fund to two Aura Core Income Funds would have yielded a cash return over the year to July 2024 of 8.21 per cent, or a monthly payment of 0.684 per cent. After each monthly interest payment, the capital of both funds has returned to $1.00, and this monthly interest income has assisted with the cost of living and financial planning.
Brett Craig and the team at Aura Credit Holdings have been positioning both funds for tougher economic times ahead, and I concur with this conservative approach.
That’s all I have time for this week. Please continue to follow us on Facebook and X.
Disclaimer
Find out more about the Aura Private Credit Funds
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 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 the online application form. The PDS, TMD, continuous disclosure notices and relevant application form may be obtained from www.oneinvestment.com.au/auracoreincomefund or from Montgomery.
The Aura Private Credit Income 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.
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.
