Each month we give our readers a little insight into a Powerwrap team member by asking them ten questions about their role, life and personality. This issue we speak to Shareen Devi from the Powerwrap Relationship Management team.
Name: Shareen Devi
Company Role: Relationship Manager
What does your role at Powerwrap entail?
Managing client and business partner relationships, by using data to look for trends and problems, and analyse communications, contracts, and negotiations.
Choose your Mr. Men to describe your work personality?
- Mr Chatterbox
Are you more of a hunter or a gatherer?
- I would say a bit of both, you need a balance in Financial Services.
What nickname do you prefer to be called?
- I do not really have a nickname as such but some people call me Devi.
The biggest achievement to date – personal or professional?
- Personal achievement – My two beautiful kids and a wonderful husband.
- Professional achievement – Working overseas, managing several teams overseas, reporting to multiple Heads of business.
What do you like most about Powerwrap?
- The team, the people in it and the energy the business is driven by.
What were you like in high school?
- Believe it or not I was very shy, quiet and timid.
What’s your favorite 80-90s jam?
- Mariah Carey – Hero
Which AFL team do you support?
- The winning team !
These ‘Meet the Manager Luncheons’ are hosted by Powerwrap as part of the Step Ahead Program. We provide a open forum that allow fund managers the opportunity to meet and discuss their products or macro or micro issues with Powerwrap’s Dealer Group clients.
|14 Aug||Navis Capital & Powerwrap – Private Equity|
Meet the Manager Event
|Lessons learned in Asia’s private & listed equity markets. Why investors struggle to get a fair share of the wealth that is being created||Speaker – Hugh Dyus|
Please join us for lunch on Wednesday August 14 at 12pm Bottega Restaurant – Email firstname.lastname@example.org to register.
|5 Sep||2019 Adviser Conference||Three keynote speakers will talk about infrastructure, Australian Ethical Income and Australian Micro||Join us for lunch – Thursday 5 September 12:15pm for 12:30pm start – 2pm. Venue – The George on Collins Lower Ground 162 Collins Street – RSVP here|
|10 Sep||IML and Loomis Sayles Adviser Roadshow – September 2019||Please join us for a lunch presentation and update from Anton Tagliaferro and Daniel Moore from IML as well as Lee Rosenbaum, Portfolio Manager of the Loomis Sayles Global Equity Fund.||Melbourne|
Tuesday 10th September, 12:30pm – 2:00pm
RACV Club, Level 17, 501 Bourke Street, Melbourne 3000 – RSVP here
|11 Sep||IML and Loomis Sayles Adviser Roadshow – September 2019||Please join us for a lunch presentation and update from Anton Tagliaferro and Daniel Moore from IML as well as Lee Rosenbaum, Portfolio Manager of the Loomis Sayles Global Equity Fund.||Brisbane|
Wednesday 11th September, 12:30pm – 2:00pm
Customs House Brisbane, The River Room, 399 Queen Street, QLD 4000
|12 Sep||IML and Loomis Sayles Adviser Roadshow – September 2019||Please join us for a lunch presentation and update from Anton Tagliaferro and Daniel Moore from IML as well as Lee Rosenbaum, Portfolio Manager of the Loomis Sayles Global Equity Fund.||Sydney|
Thursday 12th September, 12:30pm – 2:00pm
The Westin Sydney, Heritage Ballroom (Level 6), 1 Martin Place Sydney NSW 2000
|19 sep||India Avenue||Please join Powerwrap & India Avenue for a boardroom lunch to learn about the fund and investment in India.||Monday September 19th 2019 – 12:30 – 2:00pm|
Location: Powerwrap – Level 14 / 356 Collins Melbourne Vic 3000
Fairlight Asset Management
Australian investors understand the case for including domestic small and mid cap (SMID) companies in their portfolios and have typically benefited from these allocations. This is however, at odds with their more sparing allocations to global SMID, leaving them underweight this non-trivial USD $13 trillion asset class (approximately 40x the size of the Australian SMID market).
Whilst it is understandable from a behavioural perspective that investors naturally gravitate toward large and well-known foreign companies when investing offshore, Fairlight believes that there is a compelling case for also including an allocation to Global SMID for several key reasons:
Global small outperforms global large
Long-term studies provide a wealth of evidence to support the claim that globally, smaller companies outperform their larger counterparts. From 1927 through 2015 in the U.S., the return premium earnt by investing in small cap companies relative to large cap companies was 3.3% (Andrew Berkin, 2016). Similarly, an analysis of fifteen European markets found an average return premium of 2.4% to small companies over the period 1982-2014 (Stanley Black, 2015).
The small company return premium is intuitive as smaller companies are able to grow faster and have a longer runway to compound growth. Less sell-side coverage means that smaller companies exhibit greater mispricing offering further opportunities to outperform. The return premium may also be compensative for lower liquidity and less diversified business models.
The probability of small company outperformance increases steadily with investor time horizon. Figure 1 shows that for long-term investors, the probability of small company outperformance has historically approached 100%.
An allocation to SMID improves the risk/return characteristics of global equities
Diversification is famously the one free lunch in finance and investors can benefit from the imperfect correlation of small and large caps. The reason for this imperfect correlation is because returns generated by large cap stocks are substantially driven by common global factors, while in contrast, returns from small cap stocks are primarily driven by local and idiosyncratic factors.
Whilst small companies are modestly more volatile than large ones in isolation, a blend of global large and global small companies does not necessarily have to be more volatile than a portfolio of global large companies because of the benefits of diversification (Figure 2 uses a large/SMID ratio of 75/25%). This allows investors to earn some of the historic return premium associated with smaller companies, without necessarily taking on additional risk. Restated in finance theory terms – the addition of global SMID moves the efficient frontier of the portfolio upwards.
The absolute risk characteristics of global SMID are attractive relative to Australian equities
The ultimate barometer of the risk characteristics of an asset class was the realised performance during the 2008 financial crisis. During this difficult period, global SMID exhibited better risk control for unhedged Australian investors than both Australian large cap and Australian small cap equities (see Figure 3). This relative defensiveness comes from the tendency of the Australian dollar to depreciate relative to other developed world currencies in periods of economic stress, providing a buffer to unhedged AUD returns.
For Australian investors adding a portfolio allocation to global SMID can increase portfolio expected returns without a commensurate increase in risk. The Fairlight Global Small and Mid Cap Fund provides exposure to a portfolio of 30-40 high-quality global SMID companies selected with valuation discipline.
If you are someone who scouts the outer perimeter of the traditional investment landscape for new growth areas you will no doubt be familiar with digital currencies such as Bitcoin and Ethereum and the incredible opportunity they have offered savvy investors in recent years. However, unless you have been following these markets closely you may be forgiven for thinking that the “bubble” has burst, and the space no longer represents longer term value. You would be mistaken.
Digital currencies came to the attention of the mainstream investment community back in late 2017 when Bitcoin (and others) went on a parabolic move to $20,000 USD; a move that started at $400 USD back in 2016. The Fear of Missing Out, or FOMO as we call it, saw many buying at or close to the top and swiftly losing money as the market dumped, as parabolic markets do, all the way back to $3000 USD. The “Death of Bitcoin” was splattered across the headlines and comparisons to Tulip Mania and The South Sea bubble made for eagerly digested headlines but were far from the truth. You see bubbles burst by their very nature, they inflate, they burst and then they disappear often quicker than they appeared. What you may not know is that in Bitcoin’s 10-year history the flagship digital currency has seen four such dramatic corrections (in excess of 80%) following parabolic moves; yet each time it has bounced back to trade on to significant new all-time highs, at multiples. In fact, if you remove the noise and simply strip Bitcoin back to it’s financial year lows alone; since inception it has quietly been achieving an average annual compounding growth rate of 165%. Because, you see Bitcoin is not in a bubble, rather it has, as a result of its enormous potential, been experiencing “hype cycles”. The term, originally coined by the research and advisory firm, Gartner refers to a phenomenon whereby high growth is matched by high volatility and even higher expectations, leading to periods of apparent overvaluation or hype-cycles until eventually the technology is globally ubiquitous. Without scratching the surface, it is a defensible position to simply take the headlines at face value; but dig a little deeper and you find gold, digital gold!
The good news for investors is that the team at Cloudbreak Asset Management (CBAM) believe that not only has the bottom of the market been reached in this current cycle but the next big run is slowly starting to take shape and we expect this run to exceed the last in magnitude.
The even better news is that research shows a significant diversification benefit to including a small allocation of digital currencies in traditional portfolios, without any significant increase in risk. Digital assets or cryptocurrencies as they are often referred to are non-correlated with other assets classes. Better still, they are non-correlated AND exhibit asymmetric returns over the longer term. The table below demonstrates how an allocation of just 5% Bitcoin in a standard Global 60/40 portfolio over a five-year period dramatically improves that portfolio’s performance.
|Parameters||Global 60/40||+5% Bitcoin|
|Date Range||July 2014 – June 2019||July 2014 – June 2019|
|Annual Stand. Dev.||6.89%||7.58%|
The research clearly demonstrates that a small allocation in digital assets (in this case Bitcoin) within the context of a standard global 60/40 portfolio would have provided a more than doubling of annualised return over the period without any significant increase in volatility. The research also shows an impressive uptick in sharpe ratio, representing a strong improvement in risk-adjusted returns. It pays to keep in mind that this five-year period also included both the 2014/15 and 2018 bear markets. The true beauty of a history written in numbers is the objectivity it provides. It is of little consequence if you are a “bitcoin maximalist” or a “no-coiner”, the numbers speak for themselves and the story they tell is a compelling one.
Granted, the logistics around purchasing and safely storing digital currencies present significant hurdles to most. As does understanding and unpacking the determinants of value in this nascent asset class. And that is where professionally managed Funds like the Cloudbreak Digital Opportunities Fund are providing real value to investors by simplifying access to the digital currency markets via a familiar and secure vehicle.
The Investment Manager of the Fund, CBAM consists of traditional financial markets traders/analysts and blockchain and cryptocurrency global leaders and is perfectly positioned to assist you in obtaining exposure to the digital asset space. Our message to you, is that if you do not currently have any exposure to this space then it is time to “get off zero”. History paints the picture, we offer the vehicle but it is only you that can take action. Please feel free to reach-out to find out more and join us on this exciting journey at cloudbreakassets.com
CBAM is a Corporate Authorised Representative of AFSL 505011. The Fund’s Trustee and Administrator is Boutique Capital (ACN 621 697 621) and the Fund itself is open to sophisticated investors only.
Investment Objective and Investment Strategy
To actively manage a portfolio of credit instruments and deliver returns that are uncorrelated to equity markets. Targeted portfolio construction is to hold assets with a short credit duration and high running yield to ameliorate periods when risky assets sell-off. Mutual manages interest rate risk by predominately investing in assets that reset their reference rate every 30 or 90 days.
The Mutual High Yield Fund (the “Fund”) delivered another strong monthly return, recording 1.03% net for July. The six-monthly net return was 3.88%, relative to the benchmark of 0.91%. The Fund benefits income orientated investors as the majority of the returns are delivered via quarterly unfranked distributions (or running yield).
Continuing the theme from prior months, Investors are still “hunting for yield” with little consideration of risks. An example is the listed interest rate security, Ramsay health Care (ticker: RHCPA). This bond trades at around $109.00, but may be called at the next payment date in October 2019 at $100 plus accrued of ~$2.30. Accordingly, Investors currently buying this security are risking $7.00 of capital.
Notwithstanding the recent rally in risky assets, on balance it is likely to continue, which owes to low yield on offer from term deposits and government bonds. Recently the Australian government issued a 10-year government bond at 1.09% setting a new record low. The sharp fall in bond yields over 2019 has increasingly resulted in the phenomenon of negative yielding debt (mainly in Europe), meaning Investors are paying an institution to hold their bonds.
According to Bloomberg, around $13 trillion of global bonds trade with a negative yield. Europe are witnessing highly rated corporate debt trading with negative yields, including Nestle, McDonalds, Apple and AT&T. Amazingly, as the negative yields in Europe push investors into riskier assets, the 2.05% yield on Greece 10-year government bonds is only 16bps higher than the 10-year US government bond rate.
The Fund employs a relative value strategy to identify undervalued assets. Since the inception of the Fund we continue to view great relative value in Residential Mortgage Backed Securities (“RMBS”). This proved correct in July with most of the outperformance attributable to the tightening credit spreads of the Fund’s holdings of RMBS. While RMBS credit spreads may have tightened in July, they still represent great relative value with BBB rated RMBS bonds trading at BBSW + 390bps while 5- year major bank subordinated bonds, also rated BBB trade at around BBSW + 185 bps.
Looking forward, the Fund continues to review a number of attractive investment opportunities with the objective to meet the Fund’s benchmark over a rolling 12-month period.
Mugunthan Siva | India Avenue Invest
Investing in India can be considered mysterious, dangerous, risky and volatile. Investors who prefer clarity and transparency through well managed and governanced companies, generally stick to developed markets like the US, UK, Japan and the ASX 200 for us Australians.
However, perhaps some of the best performed businesses are domiciled in developing economy share markets such as India, China and Brazil. With strong economic growth being driven by fundamentals such as a young and aspiring population, a rich resource base or a comparative advantage, these economies create an ecosystem for thriving companies selling simple goods and services like cars, financial services, consumer goods and information technology solutions. Additionally, the need for infrastructure and economic development creates significant opportunity for businesses involved in areas like road construction, telecom enablers, railway networks and port operators.
These companies are yet to become a Nestle, McDonalds, Coca-Cola, IBM, Facebook, Amazon, WalMart, Pfizer or Apple yet. Their profit base is still at a low point (the Western consumer dwarves the Eastern consumer at this stage), but they are powered by the potential for a significant rise in wealth relative to a developed market ecosystem.
Take for example the case of India. The Government has a stated goal (in its recent budget) of achieving an economic size of US$5trillion by 2024. This will take India to 4th largest economy in the world, behind the US, China and Japan. Importantly, it will mean its GDP per capita will rise from US$2,100 to over $3,500 i.e. a 67% increase in wealth over 5 years. Additionally, the Government of India has stated the need for US$1.5trillion of infrastructure over the next 5 years. More roads, rail, ports, airports and urban infrastructure, which will create substantial opportunity for companies within the ecosystem.
Whilst investors in developed markets are looking for a new technology, the next all curing drug or a medium that gathers significant customers with the intent of future data, in markets like India it can be simple businesses growing tremendously from old-school aspiration and development. We explore three such companies below.
Titan Company is a consumer goods company which generates most of its revenue through the procurement of gold, manufacture and design and retailing of jewelry (93% of revenue). The company, a JV between the Tata Group and State Government, is also involved in manufacture and retailing of fashion watches and eyewear.
As the economy of India is becoming formalised through Government reforms like GST and Demonetisation, there is a huge push towards organised retailing rather than one store operators or those which have traditionally operated in the non-tax paying sector of the economy. This created the opportunity for chains as the aggregation of retailing occurs. Titan now has 4% market share of jewelry and its business is thriving through brand recognition.
|The stock has generated an annualised return of 34% over the last 10 years. That’s a return of $190,328 on a $10,000 investment over just 10 years. That’s from something simple like selling jewelry, driven by fundamentals such as Indian’s love of gold and a transition to organised retailing as wealth increases and the need for authenticity rises.|
Bajaj Finance is a non-banking financial services company. The company deals in consumer finance, SME and commercial lending and wealth management. The company has close to 300 consumer branches and 500 rural locations, with over 33,000 distribution points.
The company has emerged from providing two-wheeler and three-wheeler vehicle loans to durables financing and business and property loans. As credit growth has flourished in India, this company has thrived through strong brand recognition, distribution points and quality management.
The stock has generated an annualised return of 66% over the last 10 years. That’s a return of $1,628,300 on a $10,000 investment over just 10 years.
This is from a simplistic business benefitting from a shift in a savings culture towards a credit culture for purchases (coming from a low base of only 10% household debt to GDP!).
KEI Industries is a manufacturer and distributor of cable and wires for the electronics industry. Currently the company has an order book of the size of A$1bn and is winning strong orders in the EPC category. The end users for the product in India are the railway, consumer durables, construction, power and automotive sectors, all of which are thriving from the significant development of infrastructure in the country.
The company is relatively small at a market capitalization of A$700m, however its history illustrates its emergence in a growing industry in India which generates double digit EBITDA margins in a market growing at between 15-20% per annum. Over time, KEI Industries will not only be able to thrive in markets like India, but also through exports to other regions through its comparative advantage.
The stock has generated an annualised return of 33% over the last 10 years. That’s a return of $174,371 on a $10,000 investment over just 10 years. This business is an ancillary business to manufacturing and infrastructure and illustrates India’s increasing capability for value-added manufacturing in the electronics industry.
India’s simple businesses, which we know are likely to thrive in an economy where GDP per Capita of US$2,100 rises substantially over the next decade, should generate significant profits. Investing in a portfolio of less discovered companies (i.e. perhaps finding the next Titan Company or Bajaj Finance) in such a market can create substantial gains for investors, if the appropriate primary research is undertaken to decipher the winners from the losers. That is critical!
The India Avenue Equity Fund owns all the companies mentioned in this article. Given their co-locations in Sydney, Australia and Mumbai, India as well as their partnerships with locally based stock and portfolio advisers, it places them in a strong position to identify these companies at an early stage. You can visit their website at www.indiaavenueinvest.com.
The views and opinions contained in this document are those of India Avenue Investment Management Australia Pty. Ltd. (IAIM) (ABN 38 604 095 954) & AFSL 478233. Equity Trustees Limited (Equity Trustees) (ABN 46 004 031 298) AFSL 240975, is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT), is the Responsible Entity of the India Avenue Equity Fund. This document has been prepared to provide you with general information only and does not take into account the investment objectives, financial situation or particular needs of any person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. IAIM does not express any view about the accuracy and completeness of information that is not prepared by IAIM and no liability is accepted for any errors it may contain. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the product disclosure statement before making a decision about whether to invest in this product. No part of this material may be copied, duplicated or redistributed without prior written permission of IAIM or Equity Trustees. The user will be held liable for any unauthorised reproduction or circulation of this document, which may give rise to legal proceedings. Information contained here is based on IAIM’s assumptions and can be changed without prior notice. It is not and may not be relied upon in any manner as legal, tax or investment advice or a recommendation or opinion in relation to an IAIM financial product or service, or any other financial product or service. Please consult your advisors, read the relevant offer document and consider whether the relevant financial product or service is appropriate for you before making any investment decision. Investment in securities involves risks and there is no assurance of returns or preservation of capital. Neither IAIM, Equity Trustees, nor any of its related parties, their directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost capital, lost revenue or lost profits that may arise from or in connection with the use of this information.