The blog benefits from takeovers, while investors benefit from the blog!
I’m really impressed by the investment teams we have assembled here at Montgomery. Not only are the funds they are managing generating outperformance for investors, but they are producing content here at the blog that is proving extremely useful and profitable, for free!
Through 2021 we have been writing here at the blog, and in the press, and talking to advisers and planners, about a number of themes likely to impact investors favourably this year.
The first theme was takeover mania. In a February 9 blog post entitled RBA lays out welcome mat for takeover mania! Who might be next we wrote;
“Towards the end of last year, we offered an investment thesis describing why overseas pension funds, with clients earning zero elsewhere could pay double current prices for listed companies offering steady and growing income streams from strategic, high quality, long-life assets, while still offering their own clients back home a relatively attractive yield.”
The second theme is the institutional search for boring and reliable income streams. By way of example, in an article for Firstlinks entitled Four fruitful themes show plenty of juice in the market we wrote;
“A second area of opportunity can be labelled ‘income’. The search for yield remains heightened and global. Members of pension funds worldwide are struggling on income rates of less than 1% so the demand from their pension funds for assets that produce reliable, if not dull, income streams is acute. Witness, for example Telstra’s desire to split off its mobile towers to permit a ‘fairer’ reflection of their value. Also, note the NSW government’s contemplation of a sale of its gambling tax revenue streams.”
And back in December last year, in a blog post entitled, How to position your portfolio for a post-COVID boom, we wrote;
“Income producing companies, particularly those with boring annuity style income streams may be in hot demand post COVID.”
The third theme described throughout the last financial year was the ‘Reopening’ trade and the importance of owning businesses benefitting from the vaccine rollout and an eventual reopening. Back in August last year, in an article for The Australian entitled Time to prepare portfolios with COVID-19 vaccine ‘insurance’ I wrote:
“If a vaccine is successfully discovered, trialled, developed, approved and distributed, there are a bunch of companies, whose share prices reflect a continuation of lockdown conditions, that will re-rate very quickly. It may therefore make sense to have some portfolio insurance through these companies, especially if their share prices are currently implying current circumstances to continue into perpetuity.”
The article highlighted Sydney Airport as a key investment noting;
“Air travel in Australia is down almost 98 per cent. Such restrictions reflect Stage 5 lockdown conditions that seem inconsistent with, for example, Victoria where 25 per cent of construction workers are permitted on site despite Stage 4 lockdowns in force.
There seems to be no reason why passengers from one state with no community transmission couldn’t travel to another state or territory experiencing the same absence of community transmission. Even without the development of a vaccine, triple-digit growth in revenue would if the number of flights move from 98 per cent down to 75 per cent down.”
This week, these three themes have coalesced in the form of a bid for ASX-listed and critical infrastructure Sydney Airport, a top 10 position in both The Montgomery Fund and The Montgomery [Private] Fund.
The Australian is reporting that expectations are growing Sydney Airport’s board will recommend shareholders accept the $22.3 billion takeover offer, while The Australian Financial Rewiew is reporting that investors cite the scarcity of infrastructure assets and Sydney Airport’s long concession and position near the city’s CBD as justification for a higher price.
Whichever it is, both investors in our funds and readers of the blog have already benefitted.
The obvious question is, what are the other companies yet to benefit from our 2021 Investment Themes? Perhaps Dominic’s February blog post offers some suggestions for further research. Keep a daily eye on the blog for further investment ideas. And if that’s too onerous, considering investing directly. Be sure to seek personal professional advice of course.
The Montgomery Funds owns shares in Sydney Airport. This article was prepared 08 July 2021 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Sydney Airport you should seek financial advice.