Mercer actuary David Knox says the data used to determine the old age dependency ratio is “totally out of date” and overstates the severity of the problem.
From their inception, SMSFs have always attracted more than their fair share of criticism. Now it’s an ageing membership that’s being used to restrict their numbers.
Market selloff offering a”unique opportunity”
Hyperion cites pricing power, market share gains for confidence
Hyperion has been one of the most successful home growth fund managers in Australia, with their growth-oriented portfolios delivering strong returns in the lead up to the pandemic, and then accelerating even further as the technology boom took off.
Yet the beginning of 2022 has marked a significant shift in the market paradigm, in which the multi-decade tailwind of falling bond yields, which supported the valuation of ‘long duration’ assets like growth stocks, has turned into a headwind. The impact has been far swifter than many expected, with most technology companies, quality or not, sold off by as much as 50 per cent regardless of their operating performance.
Some suggest this is the beginning of a decade of strength for value stocks, and others that this is merely a speed bump amid a much longer-term theme; the truth likely lies somewhere in the middle. The team at Hyperion remain convinced that “low levels of nominal economic growth, including low inflation” remains the most likely outcome in coming decades. In which case, a return to this environment “will ultimately be advantageous for investors in high quality structural growth stocks” like those that have driven returns.
2022’s result has been challenging to say the least, with the fund down more than 30 per cent for the financial year; clearly this must be kept in context to a decade of broader outperformance. A ‘challenging time’ in the last six months was likely driven by those market participants employing “short-term trading strategies that involve substantial switching of capital” between long and short duration stocks as fast as the wind blows.
“Underlying company fundamentals have not deteriorated” they explain in a recent paper, highlighting that they are focused on “investing in businesses that are robust and real with strong and sustainable underlying economics”. That is, they will not invest in ‘concept’ stocks that lack of long-term ‘quality’ attributes they seek due to the early stage of their lifecycle.
The paper suggests that the portfolio is well positioned for both an inflation and recessionary environment, with the latter driven by the fact that their long-term valuation model already assumed below trend economic growth for the foreseeable future. Similarly, recessionary environments tend to result in “accelerated market share shifts” they will benefit many of their core holdings which include Amazon, Block and Microsoft.
The perceived pricing power that many of these companies hold which should allow them to “offset any material increase in interest rates…. with higher revenues and higher future cash flows” remains central to the group’s stock selection approach, with confident that tehse company will not be forced to raise large amounts of debt or equity at depressed prices.
While 2022 has not been pretty, for value or growth managers alike for that matter, the current selloff should be seen as a “unique opportunity” for those who expect the global economy to remain as challenged as ever in the long-term.
