Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby. Welcome aboard everybody now if you've just tuned in.
Speaker 1: We started the year earlier this week with the edition
Speaker 1: Your Shares in twenty twenty six, and we had Mark
Speaker 1: Jocum take us on a panoramic view really of global
Speaker 1: investment markets and what we might reasonably expect in the
Speaker 1: year ahead. Today we're going to look at individual shares. Specifically,
Speaker 1: we're going to look at Australian shares on the A six,
Speaker 1: which means we're talking about stock picking. And joining me
Speaker 1: on the show is jun Belu of Tedcap. If you
Speaker 1: recall she did this exercise with me last year. She
Speaker 1: had just started her fund actually this time last year,
Speaker 1: certainly as in its current formation, and in that twelve
Speaker 1: month period, I think we can say that she's become
Speaker 1: one of the best known, high profile certainly stock pickers
Speaker 1: in the market. Very good to have you on again.
Speaker 1: How are you, JB.
Speaker 2: I am great, Hi James, thank you so much for
Speaker 2: having you. Always love to have chat about the stock market.
Speaker 1: Well, we are ready to roll. As I say, we
Speaker 1: did an exercise earlier in the week where we just
Speaker 1: looked at the broader market and they sort of conditions
Speaker 1: out there, just to refresh for everybody. You know, our
Speaker 1: own market, the US did about seventeen eighteen percent, and
Speaker 1: we in the end almost got to ten percent, thankfully
Speaker 1: due to as always the dividend kicker of three and
Speaker 1: a half percent or so, which has come down it
Speaker 1: used to be about four and a half percent. We'll
Speaker 1: come back to that as the show goes on, but
Speaker 1: we want to look at first of all the outlook
Speaker 1: for the AX. Tough question, but clear question for you.
Speaker 1: Do you think the ASEX can do it again this year?
Speaker 1: Can it do double digits?
Speaker 2: Yeah, a SEX definitely is going to get to the
Speaker 2: double digit if anything, potentially a little bit of upside.
Speaker 2: I'll tell you why. There's a couple of tailwinds. One
Speaker 2: is that we started seeing our corporate earnings doing a
Speaker 2: little bit better. You know, in the last few years,
Speaker 2: we have had a lot of downgrades and now looking
Speaker 2: you know, looking forward next twelve months, we're looking at
Speaker 2: the corporate earnings growth between eight to twelve percent. That's
Speaker 2: actually pretty good. And then if you look at some
Speaker 2: of the biggest sector actually you know, one of the
Speaker 2: biggest sector, which is mining for Australia, they are having
Speaker 2: they are on fire. That sector is projected to do
Speaker 2: pretty well again this year, of course, will be more selective,
Speaker 2: will be more supported by some of the structural commodity
Speaker 2: like copper and others, but that sector should do pretty well.
Speaker 2: They paid pretty big dividends and that should drive quite
Speaker 2: a lot of growth in terms of earnings as well.
Speaker 2: So our market, I think it will get to the
Speaker 2: ten percent potentially with a little bit more, you know.
Speaker 2: I guess there's a bit of expectation for US market
Speaker 2: to do so much better, as people always do. I
Speaker 2: think the one thing that sort of held holding us
Speaker 2: back is that, you know, the back of the mind
Speaker 2: question of what's going to happen to our interest rate.
Speaker 2: We're going to get a height towards the end of
Speaker 2: the year potentially. I don't think it's coming soon, but
Speaker 2: I do think potentially there is a chance. But that
Speaker 2: is still going to see us see our market have
Speaker 2: a pretty good return.
Speaker 1: So just to give you some context there, it's not
Speaker 1: that we have strong earnings this year so much as
Speaker 1: we have earnings this year, right, So it's actually been
Speaker 1: pretty dull hasn't it in terms of earnings and perhaps
Speaker 1: behind all the noise, the inability to have strong earnings
Speaker 1: on the axis is really what explains why we were
Speaker 1: dragging our heads compared to the US in recent times.
Speaker 2: That's right, so recent US because the index is very
Speaker 2: dominated by a lot of those growth businesses and they
Speaker 2: have done incredibly well. And the challenge is that for
Speaker 2: next year is you know, there is a bit of
Speaker 2: investor skepism with evaluation, you know, and now they're getting
Speaker 2: returns and they are becoming cabinets heavy companies now. So
Speaker 2: now in a way that our market may see, Ernie Swarth,
Speaker 2: that's actually not too bad.
Speaker 1: One of the things that people have been concerned. There's
Speaker 1: two sort of outstanding, obvious, in your face headwinds for
Speaker 1: the AX all things been equal, who knows, of course
Speaker 1: the international markets and if we wake up in the
Speaker 1: morning and Wall Street has a ten percent correction, where
Speaker 1: we are going to follow that for sure absolutely probably
Speaker 1: exceeded history would suggest. So let's put that on the table.
Speaker 1: But as we stand, and as you say, twelve months
Speaker 1: is a long time, so we're talking over twelve month
Speaker 1: pero that we could do this double digit. But you
Speaker 1: mentioned one thing first of all already, which is the
Speaker 1: prospect of rising rates. So the consensus is that we're
Speaker 1: going to have rising rates now that is surely going
Speaker 1: to work against sentiment in the market. And the second
Speaker 1: thing that I just alluded to at the start is
Speaker 1: our great concushion has always been dividends. The dividend yields,
Speaker 1: which was about four and a half percent, it's actually
Speaker 1: sliding and sliding. It's now about three and a half.
Speaker 1: So how do you bake in those two factors? JB.
Speaker 2: That's a really good question. I think it's very true.
Speaker 2: First of all, with the interest rate, it's very interesting
Speaker 2: the expectations for rate rise has changed very rapidly, literally
Speaker 2: within the last few weeks of December, that market start
Speaker 2: expecting a rate rise in February, rate rise in May,
Speaker 2: and you know, instead of ray cards previously. So now
Speaker 2: my view is that because market is very fast in
Speaker 2: sort of pricing in the expectations, which you know, economic
Speaker 2: seems to have moved together. I do think that what's
Speaker 2: been priced in which we saw a lot of selling
Speaker 2: in the ur retailers, is now actually perhaps way too pessimistic.
Speaker 2: My view that we're not getting a rate rise in February.
Speaker 2: Even May is very skeptical because you know some of
Speaker 2: the data stats coming through. Normally for RBA, they called
Speaker 2: for the board. The key thing is to do nothing
Speaker 2: usually is the first step, and then it takes a
Speaker 2: really high hurdle to move from raate card to suddenly
Speaker 2: rate right. So that is going to be very negative.
Speaker 2: So for me is that I don't think it's coming
Speaker 2: in the first half of the year. Yes, you'll be negative,
Speaker 2: you know when it does come that part of the year,
Speaker 2: and that's assuming inflation stays very strong. We only just
Speaker 2: really have a one data point, you know, in September
Speaker 2: quarter that was that was stronger than expected. So you know,
Speaker 2: we're just still too early to call. Yes, c it
Speaker 2: is negative for the share market, but right now market
Speaker 2: is pricing in quite a lot of rate rise already,
Speaker 2: so from here on you know in a way that
Speaker 2: we won't be surprised. So I think it's been pricing
Speaker 2: at least one rise for this year, and I think
Speaker 2: if anything, timing could be extended out so that if anything,
Speaker 2: that's kind of on the positive front. So for the
Speaker 2: market valuation, before.
Speaker 1: You talk about dividend, Yeald, that's very interesting. So your
Speaker 1: theory to some extent is that the sell off in
Speaker 1: the role of the Christmas was actually because of the
Speaker 1: change of sentiment about rates and the market and the
Speaker 1: analysts and the journalists are all running wareheaded themselves in
Speaker 1: terms of how quickly this would and THERBA would never
Speaker 1: be seen to flip flop quite so dramatically. Is that
Speaker 1: basically what where you're coming from.
Speaker 2: Absolutely, I think the pricing is essentially being in and
Speaker 2: now we actually if you've seen some of the rediscretionary sector,
Speaker 2: they started performing a little bit better just in the
Speaker 2: last few weeks because the probability for raate rise is
Speaker 2: already moving back from you know, something like eighty percent
Speaker 2: in February now down to twenty five. So, you know,
Speaker 2: just the market's got too way ahead of themselves.
Speaker 1: So but consumer sentiment is it's pretty poor, Yeah, I
Speaker 1: think so.
Speaker 2: I think consumer the actual consumer sector for this year
Speaker 2: will be a bit challenged because we heard the Christmas
Speaker 2: was okay, you know, November was strong, but the challenges
Speaker 2: there's a lot of discounting and because of the headline
Speaker 2: was being discussed in the media. You know, Ray Rice rayhike.
Speaker 2: Consumer just don't spend. And on top of that, we
Speaker 2: also had the tragedy at Boondai shooting, you know, hearing
Speaker 2: your South Wales that has really caused a lot of
Speaker 2: traffic to disappear from shopping centers and others. You know,
Speaker 2: this has happened previously, any of those similar sort of
Speaker 2: events that you know, consumer just don't feel they want
Speaker 2: to be shopping, they want to don't Yeah, they don't
Speaker 2: to spend. So we definitely seen that full back discounting
Speaker 2: is very heavy at the moment. We already have a
Speaker 2: couple of retailers came out already downgraded, not on the
Speaker 2: revenue front, but more so on the march because they
Speaker 2: have to discount. So I do think that will become
Speaker 2: a theme for this year because retailers are sitting at
Speaker 2: very big margins for the last couple of years because
Speaker 2: things been good. You know, they do have to give
Speaker 2: some of that back.
Speaker 1: This year, okay, and on the dividend yield. So the
Speaker 1: point we were making is that cushion is fading for
Speaker 1: Australian stocks. That the ability that you could always say,
Speaker 1: well you're going to get four and a half percent
Speaker 1: whatever happens, but you're only going to get three and
Speaker 1: a half percent. Now, that puts more pressure on the
Speaker 1: stocks to grow, doesn't it.
Speaker 2: In a way. So I think part of the reason
Speaker 2: the dividend has been steadily falling is one is that
Speaker 2: you know, clearly our banks is already sort of peaked
Speaker 2: in terms of their earning, so it's not growing in
Speaker 2: terms of dividend. And two is the last few years
Speaker 2: that resources company which normally pay big dividend, has been
Speaker 2: really tough. But we just started seeing those commodity prices
Speaker 2: turning around significantly. If you look at just take PHPO
Speaker 2: or Real as an example, both of them are sitting
Speaker 2: there with thirty percent earnings upgrade to come in this
Speaker 2: reporting season because how much commodity price has moved. Just
Speaker 2: this month, the commodity prices all up double digit. So
Speaker 2: that means these companies normally pay out quite a lot
Speaker 2: of dividends and that should see the dividend improved for
Speaker 2: this year. But definitely they will put pressure on companies
Speaker 2: because the Australian investors always demanded higher dividends.
Speaker 1: So do you think the big miners the mining sector
Speaker 1: in it it could actually revive the dividend yield across
Speaker 1: the market, it's self a structural decline.
Speaker 2: I think they will pay more, but one of my
Speaker 2: concerns for the Big Mind at the moment is that
Speaker 2: they're making so much cash flow at the moment, almost
Speaker 2: like a windfall, and they historically have being very bad
Speaker 2: in paying out shareholder and they'll hold on to the
Speaker 2: cash then normally would like to go out and buy
Speaker 2: things to grow. You know, managements sit around the table
Speaker 2: going how do we grow in next year? And we're
Speaker 2: already started seeing a.
Speaker 1: Bit of that.
Speaker 2: So the challenge is that hopefully they don't go out
Speaker 2: and slowly spend all the money. But I think it
Speaker 2: looks they will be a bit disciplined because you know,
Speaker 2: shareholder room punish these sort of nowsal quite quickly.
Speaker 1: Okay, very interesting now, folks, what we're going to do
Speaker 1: is we're going to we're going to deep dive. Now,
Speaker 1: we're going to go and have a look at first
Speaker 1: of all, and I think this is going to be
Speaker 1: very interesting. We're going to look at the miners. We're
Speaker 1: going to look the mining shares of what risks and
Speaker 1: opportunities you have in front of you, which as JB.
Speaker 1: Has said it is red hot, and it is red hot.
Speaker 1: I can't think of the time. I think you'd have
Speaker 1: to go back nearly twenty years two four to two
Speaker 1: o seven to see to see the sort of momentum
Speaker 1: in the big miners. We'll be back in a moment. Hello,
Speaker 1: Welcome back to The Australian's Money Puzzle podcast. Okay, this
Speaker 1: is the second of our Outlook shows four twenty twenty
Speaker 1: sixties are always very popular and if you can, I
Speaker 1: recommend you actually listen to them in sequence because you'll
Speaker 1: really get a broad picture for investing in the year
Speaker 1: ahead and it is very useful.
Speaker 2: You know.
Speaker 1: One of the secrets of investing is not what you
Speaker 1: think is going to happen. It's knowing what everyone else
Speaker 1: is thinking is going to happen. And this is what
Speaker 1: these shows are about. They do really give you a
Speaker 1: guide if you use them in that fashion. My guest
Speaker 1: today is Jun Belu of ten Cap. Ten Cap is
Speaker 1: a one point five billion dollar fund. It is an
Speaker 1: active manager. It is long short, which is very interesting.
Speaker 1: That is they have the ability to short should they
Speaker 1: wish to do so. It started basically it has a
Speaker 1: net return ruffling of about eleven point two percent since
Speaker 1: its inception. That's against the air six two hundred of
Speaker 1: eight point nine percent over the same period of time.
Speaker 1: And if you want to know more about my guest today,
Speaker 1: We've had a show that was very popular that Juliane
Speaker 1: Sprague did with JB earlier in the year, which is
Speaker 1: called Secrets of a one point five billion Investor. Have
Speaker 1: a look at that if you want to know more
Speaker 1: about her today, I just want to concentrate on what
Speaker 1: she knows about the market and what she's thinking. Okay,
Speaker 1: now the miners, Okay, where will we start? The big
Speaker 1: three BHP, Rio and Forteskew. As you say, they've been
Speaker 1: somewhat dormant, but boy, they were kicking at the end
Speaker 1: of last year. It takes a hell of a lot
Speaker 1: to lift those stocks. They're up about twenty five percent
Speaker 1: so far in the twelve month period. That is a
Speaker 1: bhp in Rio. And when they deliver dividends, they deliver
Speaker 1: gigantic dividends, don't they. They just blow it out of
Speaker 1: that They blow the banks out of the water when
Speaker 1: they're at the top of the cycle. So where do
Speaker 1: you think we are with these big miners just now?
Speaker 1: I mean is there is there more to come? Are
Speaker 1: we are they? Where are they in their own cycle?
Speaker 1: Because they are notoriously cyclical.
Speaker 2: Yeah, absolutely certainly, Minus are not what you buy and
Speaker 2: hold and your bottom drawer sort of thing. Look at
Speaker 2: they are still looking at having a pretty good year,
Speaker 2: But it really depends on what type of commodity is.
Speaker 2: So for if our commodity outlook, if you look at
Speaker 2: the support, you know, the structural names such as copper
Speaker 2: or certainly some cases gold and maybe even al aminium
Speaker 2: has some of the structural supports. In terms of copper,
Speaker 2: you know, it's electrification and the demand globally, demand for
Speaker 2: copper has really increased, and then the supply just hasn't
Speaker 2: been there and we all know that's going to create
Speaker 2: price this location. And we're seeing copper going to have
Speaker 2: another strong yet because there's just a supply with it.
Speaker 2: Iron ore is a bit harder because a big consumer
Speaker 2: of iron oil is actually China, and China hasn't really
Speaker 2: revived that much. It's just not doing any worse. So
Speaker 2: China is steady, and then we're looking at globally the
Speaker 2: demand is actually picking up a little bit. So yeah,
Speaker 2: I think all these commodities are well supported, so our
Speaker 2: minus probably still another good year. You know, probably not
Speaker 2: going to see that twenty thirty percent range for the
Speaker 2: large miners, particularly because we are now already seeing a
Speaker 2: lot of earnings upgrade coming through. In February this year,
Speaker 2: we're going to see something like twenty thirty percent earnings
Speaker 2: upgrade for a company for these large miners, FORTESQ, if
Speaker 2: you like, actually here looking at even bigger upgrades, so
Speaker 2: you know, it's quite a lot of earnings upgrade, big
Speaker 2: dividend to come through for them. You know, this reporting
Speaker 2: season and I think next reporting season August we're going
Speaker 2: to see an even larger name. But then posta we
Speaker 2: really have to see whether globally, you know, where we
Speaker 2: stand in terms of the global bombers, But certainly first
Speaker 2: half they're going to continue to do pretty well.
Speaker 1: It sounds to me like you're saying that to some
Speaker 1: extent it's priced in the Big three, But there is
Speaker 1: such a huge mining sector and we can look further
Speaker 1: down the line at what is available out there. So
Speaker 1: if copper is like this year's thing right this year
Speaker 1: is hot metal, so to speak, where could we enter
Speaker 1: as an investor? What sort of stocks are you looking
Speaker 1: at beyond those big three? And Fortescue isn't even in
Speaker 1: the game here, is it? Really? It's iron or almost
Speaker 1: and real with very heavily iron or BHP is more diversified.
Speaker 1: But beyond those big three, what's the next layer of stocks?
Speaker 1: Let's start talking about individual stocks. Yeah.
Speaker 2: Absolutely, there's a lot of interesting names. So in terms
Speaker 2: of copper, you want to play pure play slightly larger.
Speaker 2: One is the sam Fire. It has you know, has
Speaker 2: a really good copper exposure, but said by is very expensive.
Speaker 2: Then you go even smaller. The next one you can
Speaker 2: look at is Capstole. It's due listed in Canada and
Speaker 2: then also you know in Australia it's got a really
Speaker 2: good production growth as well. Because one of the things
Speaker 2: about minor is there not only commodities, you get a
Speaker 2: right each by company actually growing production and also can
Speaker 2: benefit from high prices right now, So I think Capstole
Speaker 2: is a really good one to look at. What's also
Speaker 2: interesting is so if you look at the copper price
Speaker 2: that's gone really well, there is the next derivative. So
Speaker 2: when usually globally where copper price go really high, there's
Speaker 2: some sectors they started moving into some substituting effects. So
Speaker 2: instead of copper, it might be to use al aminium.
Speaker 2: So if you look at the prices of aluminium, normally
Speaker 2: they trace copper, and so far at the moment aluminium
Speaker 2: actually underperformed comper Now I'm not a mining specialist, but
Speaker 2: you know if you look at what that means is
Speaker 2: that potentially, you know, with strong copper, alominium will have
Speaker 2: it stay in the sun.
Speaker 1: So there's like a like a reliable ratio like LPG
Speaker 1: two oil or whatever.
Speaker 2: Very reliable ratio. That's right.
Speaker 1: Who are the players in that space?
Speaker 2: Yeah, so the easiest purest play is our CoA And
Speaker 2: clearly the share price actually gone incredibly well. And that's
Speaker 2: again Julis said, it's not just pure here and then
Speaker 2: you know, obviously it's and it's for a cousin which
Speaker 2: has had many production issues, which is South thirty two. Now,
Speaker 2: being mindful mining companies, you do really need to know
Speaker 2: what's happening in total mind production. South thirty two has
Speaker 2: had a lot of issues. It's one of those companies
Speaker 2: people always say you buy it before the result or
Speaker 2: after the result, but not during the result because they're
Speaker 2: always disappoint So just be bringing mindful when you move
Speaker 2: away from the large chap the smaller ones they generally
Speaker 2: have issues and you just got to do the homework.
Speaker 2: Be very careful with those things.
Speaker 1: Can I ask you in your own fund beyond the
Speaker 1: big three bhp real and for the SKU, what would
Speaker 1: the peer ibor was looking at your fund and looking
Speaker 1: at the biggest holdings.
Speaker 2: Sure, so aside from the larger so larger ones, we
Speaker 2: actually have more PHV than the real because you know
Speaker 2: we go through later on, we have that, we have
Speaker 2: the capsule, we have the same fire, we have the
Speaker 2: alcohol as well, a little bit of self rearly to
Speaker 2: smaller position because a little bit, you know, it needs
Speaker 2: to be careful with those socks.
Speaker 1: Operational risk as they call.
Speaker 2: It, operational risk, it's very large, that's right, it's really therefore,
Speaker 2: you know for a period where you've seen that aluminium
Speaker 2: price catch up. And also one thing we haven't talked
Speaker 2: about is the gold set, that goal set.
Speaker 1: I'm going to do. I don't think I have a
Speaker 1: little of gold. Let's do it. Let's do it. Just
Speaker 1: before we do it, folks. Something that JB has pointed
Speaker 1: out and it's so true and it's just extraordinary. Don't
Speaker 1: for one moment think that because a company owns a
Speaker 1: gold mine and gold is rising at its fastest pace
Speaker 1: since the nineteen eighties, don't for one moment think they
Speaker 1: can't blow it. They can blow it every time, it
Speaker 1: doesn't matter. They can be sitting on a gold mine,
Speaker 1: so to speak, with the most marvelous external macro conditions,
Speaker 1: and unbelievably they can blow it. And one of the
Speaker 1: things in this market, and people regret that Newcrest, which
Speaker 1: was our biggest goal miner, was sold back in twenty
Speaker 1: twenty three to Numont and it was a giveaway and
Speaker 1: it was an exquisitely time purchased by Numont and a
Speaker 1: terrible loss for Australia. But what people forget is that
Speaker 1: Newcrest was the greatest disappointer on operational risk. Talk about
Speaker 1: things going wrong every time. So with that preamble, jombat
Speaker 1: a couple of things. Let's let's set the ground here.
Speaker 1: Gold is running extraor in extraordinary run, and it's entirely
Speaker 1: understandable and rational because of the mounting risks in world economy,
Speaker 1: primarily in the US, primarily off the back of the
Speaker 1: Trump administration's behavior. Now, on that basis, I think we
Speaker 1: can be confident that it will keep going. Gold is
Speaker 1: up about very roughly, up about sixty percent in the
Speaker 1: last felve months. Gold miners who tend to lag gold
Speaker 1: itself for commodity, they are up. That is our own
Speaker 1: ASX gold sector is up about one hundred and forty
Speaker 1: percent twice as fast as goes. So we can put
Speaker 1: it on the table. There's a enormous opportunity and I'm
Speaker 1: still excellent opportunity left foreign investors in gold stocks. Where
Speaker 1: do we start?
Speaker 2: You're absolutely right, I think where do we start? So
Speaker 2: with the goal companies, And you know one reason for
Speaker 2: why goal companies always lack the goal prices. First of all,
Speaker 2: goal prices can be affected by so many things, and
Speaker 2: often it trends in directions that we don't expect. Now,
Speaker 2: So with the so when people forecast gold equity prices,
Speaker 2: people don't expect the current spot. So most of the
Speaker 2: gold companies, you know, when others do their evaluation, it
Speaker 2: assumes it's going to fall. It's been like other commodities
Speaker 2: as well. And at the same time, most of the
Speaker 2: larger gold companies, they actually are contracted all their volumes
Speaker 2: has been contracted with their customers, so they don't actually
Speaker 2: get the highest price until they.
Speaker 1: Yeah, they're working on long term contracts, which which don't
Speaker 1: necessarily reflect the red heart lift in gold.
Speaker 2: Okay, that's right, that's right, and so that's the second reason.
Speaker 2: Now the last reason of why it's always lack is
Speaker 2: because gold companies, if you do, a risk customer. So
Speaker 2: we have a model we look at all the companies
Speaker 2: risk their volatile. They are relative to share market, gold
Speaker 2: is four times of volatility goal shares, goal gold equities.
Speaker 2: They're very volatile. The reason being is that most of
Speaker 2: the gold company always need to raise money to dig
Speaker 2: out all the goal because gold is hard to dig out.
Speaker 2: You have a lot of operational risks, so they always
Speaker 2: come equity raising, particularly smaller names. So when the market
Speaker 2: so often when the market goes through free four, when
Speaker 2: people worry about the world, the goal price will go up,
Speaker 2: but goal shares, goal equity will fall a lot because
Speaker 2: people think, oh, they can't raise money anymore. They can't
Speaker 2: dig those goals out. So it is very interesting dynamics.
Speaker 2: So it's not exactly like your goal bus. It's actually
Speaker 2: works as a very extreme volatility measure of the market.
Speaker 2: But normally market in the normal condition, they will go
Speaker 2: up rasually over the goal prices. So these are the
Speaker 2: key reason why they don't they always be cheaper. But
Speaker 2: I do think the goal sector is really interesting because
Speaker 2: in the last four month, we actually have gone to
Speaker 2: a lot of smaller gold companies. So when we talk
Speaker 2: about the big goal company, you know, they have contracts
Speaker 2: and everything takes a long time to benefit from the thing.
Speaker 2: And some of the bigger ones and we both know,
Speaker 2: you know, particularly Northern Start has had a lot of
Speaker 2: production issues exactly.
Speaker 1: Yeah, yeah, just like Luclest added their day.
Speaker 2: Yeah, yeah, that's right, the weather and everything else, and
Speaker 2: most of them they're pretty good in telling us about it.
Speaker 2: It's just that market don't remember. So by the time
Speaker 2: the market don't adjust their number until suddenly they report
Speaker 2: and they said, we told you, and then the market
Speaker 2: have been put into their numbers because they got too
Speaker 2: carried away with high prices. So we moved into some
Speaker 2: of the mid tier mid caps, so smaller names, and
Speaker 2: they are the one that actually has been doing really well.
Speaker 2: Not only they growing production, they actually don't have long
Speaker 2: term contracts, so they just they started benefiting much higher
Speaker 2: prices and get all these cash flow. That's why you're
Speaker 2: seeing them doing so much better than the larger names.
Speaker 2: So you know, so the names we sit in are
Speaker 2: the likes of Catalysts and the names of Genesis, Capricorn.
Speaker 2: They're all doing really well now. They all actually gradually,
Speaker 2: you know, going from small cap small ordinary index into
Speaker 2: larger index just because they actually are benefiting so much
Speaker 2: more than the larger like the Northern Star and.
Speaker 1: US fourteen of the top twenty performers last year were
Speaker 1: gold miners. That's right, a goal that is the extraord
Speaker 1: Do you think we have a similar reflection in this
Speaker 1: twenty twenty six?
Speaker 2: I think it will be harder, but of course, look
Speaker 2: if the goal continued with the way Trump operates it,
Speaker 2: the world is still very uncertain. There is a possibility,
Speaker 2: but I think hargely for that gold reray is they
Speaker 2: distruggle for many years. The part of the reray is
Speaker 2: the market recognized your cryptocurrency is not the true diversification
Speaker 2: from the money from the you know, over stimulus. You know,
Speaker 2: all these world and wash with money. So you know,
Speaker 2: because that has become quite a problem towards the end
Speaker 2: of the year. So now the gold you see just
Speaker 2: see investors moving back into gold at the same time
Speaker 2: you see all the central banks buying gold China in
Speaker 2: your emergency market. They're not buying what they might be
Speaker 2: buying some cryptal currency. But it's just it's the gold
Speaker 2: has now restored its title as the story value.
Speaker 1: That's very interesting and I certainly I actually did something
Speaker 1: a few prior to Christmas on this. It is certainly
Speaker 1: from my point of view, digitally goal. It's over really
Speaker 1: the story about whether crypto is digital gold. It's not
Speaker 1: goldles gold. But I'm going to ask you two questions.
Speaker 1: They're not easy questions. They're relating to gold. One is
Speaker 1: on the gold rally. I don't know if you're a
Speaker 1: buler bear on gold, but I wonder one thing. If
Speaker 1: the whole thing about gold is that it was a
Speaker 1: non correlated asset and in theory it went down when
Speaker 1: markets went up, then what's going on because markets are
Speaker 1: going up and gold is going up, and so what
Speaker 1: does that mean? I mean, if what does it mean
Speaker 1: it's becoming I don't know if it's becoming correlated sufficiently
Speaker 1: that mathematically that the analysts are convinced but does that concern.
Speaker 2: You in a way because it's like you said, it's
Speaker 2: becoming very correlated, right, So it's possibly correlated. So it's
Speaker 2: been like the bond and equity when they move together,
Speaker 2: which do these days, it's almost that reduces its effect
Speaker 2: as diversification. I think what with gold is a bit
Speaker 2: different at the moment. It's look, that's why it kind
Speaker 2: of feels okay, is it going higher? You know, it's
Speaker 2: harder to see it down from here now. But so
Speaker 2: the goal is a little bit different. I do think
Speaker 2: that investors or you know, insitutions or countries around the world,
Speaker 2: there is so much demand they realize how much under
Speaker 2: owned of the goal it is, so there is this
Speaker 2: rush to buy them. So it's actually demand for you know,
Speaker 2: from real demand. It's not actually more you know, sort
Speaker 2: of financial you know, sort of structuring demand. It's actually
Speaker 2: different countries positioning, for whatever reason, a real demand for
Speaker 2: this asset class. So I think it's well supported that
Speaker 2: it still is enough support to support that. And given
Speaker 2: you know, crypto is a little bit unsure of where
Speaker 2: it stands at the moment, I think that's at least
Speaker 2: for the next twelve month. You think this price is
Speaker 2: well supported, you know, very hard to see it collapsing,
Speaker 2: particularly given the Trump administration. What's happening.
Speaker 1: Yeah, I suppose the factors that have driven it to
Speaker 1: this point remain very much in place, if not, if
Speaker 1: not enhanced. Really Okay, it's interesting you mentioned about being
Speaker 1: under owned. There is there is speculation, hard to prove
Speaker 1: this at the big superfunds. Australian super funds are way
Speaker 1: behind on glow delocation and if they are, then that's
Speaker 1: another sort of demand that would come through from that
Speaker 1: under ownership. Okay, shortbreak, folks. Back in the moment, we're
Speaker 1: going to talk about what you might avoid. Hello, Welcome
Speaker 1: back to The Australian's Money Puzzle podcast. James Kirby here
Speaker 1: talking to June Beileu of ten Cap, regular on the show,
Speaker 1: perhaps a much better known as a staff picker now
Speaker 1: then we started talking to her earlier and I'm sure
Speaker 1: that will continue in this year. She's great to talk
Speaker 1: to and I think particularly for fund managers, she's talks
Speaker 1: in detail and takes a stand and there's nothing more frustrating,
Speaker 1: I can tell you on a podcast show than someone
Speaker 1: who's humming and haweiing and beating around the bush. Not
Speaker 1: everything works for you, you always have I mean, as
Speaker 1: a staff picker, it's hard, right every year something goes right,
Speaker 1: something goes wrong. I mean most things go right. I
Speaker 1: mean I think the last time we talked, the one
Speaker 1: that the one that I thought had let you down
Speaker 1: was Ramsey. Maybe they're turning a bit now this time
Speaker 1: around Premier Investments. How do you that didn't work out
Speaker 1: for your heart? I mean do you just say that
Speaker 1: it's like doing karate? You do karate every now and again,
Speaker 1: A punch lands and you just keep going. Is that
Speaker 1: your approach or what is your approach?
Speaker 2: You know, when we look at the company and we
Speaker 2: have a thesis, you know, what is expected to return,
Speaker 2: what are some of the catalysts, and then when the
Speaker 2: catalysts come along, we look at it and say, look
Speaker 2: that's just way too tough. And so in a case
Speaker 2: of Ramsey, I remember many years ago, you know, it
Speaker 2: was a case where we're waiting for the reopening trade, right,
Speaker 2: I remember when the you know, post COVID had a
Speaker 2: lot of issues. We're waiting for people to finally start
Speaker 2: using you know, egos of doctors, and they're like, now
Speaker 2: we are seeing it now, but it's two more years
Speaker 2: then expected, and they had all these extra inflation in
Speaker 2: terms of nursing stuff and others. That's been very tricky, so,
Speaker 2: you know, but Ramsey, to be honest, it's actually now
Speaker 2: finally looking a little bit better. We know, health scopes
Speaker 2: go through these challenges, but the market seems to be turning.
Speaker 2: We'll do double digit return. So this is what we see.
Speaker 2: We want to see our thesis. We're constantly testing our
Speaker 2: thesis to say if it's a still it is a
Speaker 2: still intact. If it's perhaps the money should be allocated elsewhere.
Speaker 2: So it's kind of all, well, we always look at
Speaker 2: in the case of the retailers. Yet last year was
Speaker 2: looking as a good year to start with that, with
Speaker 2: the rake cards, you know, with the you know many
Speaker 2: ray car on the car that's coming through, with the
Speaker 2: consumer not doing too badly, you know, things were looking
Speaker 2: pretty good. However, the challenge is now that we just
Speaker 2: you know that we all see now are we getting
Speaker 2: a rad cards? Probably not, Probably is more likely to
Speaker 2: stay on hold for some time. And then in the
Speaker 2: environment also where consumers a bit more picky, not collapsing,
Speaker 2: just a little bit more picky, there might be a
Speaker 2: little bit of challenges for some of those companies in
Speaker 2: that sector.
Speaker 1: Okay, so looking at docs that may let you down.
Speaker 1: They were so good for so long, and Combank obviously
Speaker 1: was I've been talking to people all week about this
Speaker 1: about Combank, and there's almost like a mystery as to
Speaker 1: just how it got to the sort of extraordinary levels
Speaker 1: that it get to, and when it had a valuation,
Speaker 1: and when it had an intrinsic value of allegedly one
Speaker 1: hundred bucks or so and it was trading at one
Speaker 1: hundred and eighty or whatever, of course it couldn't hold up.
Speaker 1: So the question this year with banks, we have the
Speaker 1: four banks now sitting with you know, possible rate rises,
Speaker 1: possible soft consumer sentiment, struggling with the fact that they
Speaker 1: were clearly overvalued in twenty twenty five, and they are
Speaker 1: the big sector that often we would be talking half
Speaker 1: the show on. But we'll take it. I don't know
Speaker 1: if you agree, but I would take it that the
Speaker 1: best we can expect from the banks would be a
Speaker 1: sort of market average return.
Speaker 2: What's your view, I think, Magie is that it probably
Speaker 2: will be market average, a little bit less in terms
Speaker 2: of written and the return delivered from the banks will
Speaker 2: be quite you know different, So within the banks, you know,
Speaker 2: also into outperform and then the disparity will be still
Speaker 2: quite large compared to last year, so that would be
Speaker 2: quite large. And I do think the banks will be,
Speaker 2: you know, in terms of performance, will be a whole
Speaker 2: lot worse than you know, the lives of resources and
Speaker 2: a few other sectors, just because they don't have earnings
Speaker 2: growth and they're previously their earnings upgrade was because people
Speaker 2: were expecting very bad, bad their cycle. And now all
Speaker 2: the expectation has been re rated, so people don't expect
Speaker 2: that cycle. So there's no earnings upgrade to come through,
Speaker 2: and there's not much earnings growth. And then now it's
Speaker 2: all about cost out, so revenue environment benign, you know,
Speaker 2: it's really just about cost out. Then who can do
Speaker 2: the cost out? So we saw A and Z already
Speaker 2: talk about cost out. I think it's got a little
Speaker 2: more rude to go, you know, West Pide potentially a
Speaker 2: bit more. And CBA is the one that doesn't you know,
Speaker 2: never really does cost out. They invest, so you know,
Speaker 2: that's the one I think will be probably struggled more,
Speaker 2: you know, for the next twelve month because they're not
Speaker 2: going down the path where they will control costs and
Speaker 2: they will probably want to invest ahead of the pus.
Speaker 1: Okay, so banks as a sector, the big four, you say,
Speaker 1: maybe average or less than average. And when we know
Speaker 1: we have one, we're talking about a very good year
Speaker 1: that put that on the table, folks. And I suppose
Speaker 1: part of the message here is always be diversified. So
Speaker 1: Bank's not looking great, ordinary at best, with some diversity
Speaker 1: within the four. After that, I think we're going to
Speaker 1: start basically we're going to get random here, folks. Okay,
Speaker 1: I'm going to just I'm just going to spray JB.
Speaker 1: But also as the questions that you probably have in
Speaker 1: your mind. So let's go CSL extraordinary disappointment. This great stock,
Speaker 1: once the biggest stock in Australia. Can you believe this?
Speaker 1: Bigger than CBA, bigger than BHP. Now what has happened?
Speaker 1: It's down thirty five percent, but it's got an ROI
Speaker 1: of about sixteen percent, which is magnificent. What do you
Speaker 1: think is going to happen to it this year?
Speaker 2: I think by the end of the year seer Priss
Speaker 2: should be higher, but it will betail two hearts again,
Speaker 2: you know, because the reason they sounds so much is
Speaker 2: because it's perpetual disappointment. It's disappointed market again and again.
Speaker 2: Last year. I think with something like two three downgrades.
Speaker 2: Now the risk is there's one more. There's one more downrade. Look,
Speaker 2: the operating environment is still very tough. Sounds like the
Speaker 2: core business has lost really lost, you know, lost its
Speaker 2: structural growth driver. Now you know, the ig business, it
Speaker 2: seems to be in oversupply. That's why the competition is
Speaker 2: being severe. They're losing share and they say they don't
Speaker 2: want to compete on price, but clearly the market is
Speaker 2: very competitive. So that's tough. We're not seeing that turning
Speaker 2: around yet. And then the other product category, you know,
Speaker 2: we're seeing the album is doing really poorly in China.
Speaker 2: That's another headway to come through. Flu is not great,
Speaker 2: but I think that's in people's numbers now, So I
Speaker 2: think the next six months there's still numbers to be
Speaker 2: notched out. But look, it is cheaper compared to what
Speaker 2: it was. It will never go back to the heydays
Speaker 2: because it's not a growth structural grower now because it
Speaker 2: doesn't have a big pipeline to grow it but cyclically
Speaker 2: should do better less than twenty times. It is cheaper
Speaker 2: for what it was. So I think second half the year,
Speaker 2: once the earning is really cleared through a weekend, you
Speaker 2: know confidently say it will grow from here. It will
Speaker 2: definitely you should outperform.
Speaker 1: You're not exactly calling it all the way back right, Okay,
Speaker 1: very interesting. I had no idea what you're going to
Speaker 1: tell me on that one. Okay, that's CSL. Let's take
Speaker 1: a look at and talking about potential areas that may
Speaker 1: not thrill, shall we say in the year ahead, the
Speaker 1: things that might let you down, things of where there
Speaker 1: are distinct risks. Tell me if I'm I mean, tell
Speaker 1: me what you think. If there's any area I'm guessing here,
Speaker 1: where are we standing on for instance, Reads and the
Speaker 1: big If we have rising interest rate environment, then the
Speaker 1: textbook would say keep away from Reads. That is a
Speaker 1: property trust. Where are you on that.
Speaker 2: Property trust? That you're right? They underperform leading up to
Speaker 2: the rate rise, and then you're probably looking at again
Speaker 2: the second half names. I think with the Reads they
Speaker 2: will do okay. For the first part of the year,
Speaker 2: earning is still pretty strong. Now this is as a sector,
Speaker 2: but this as a sector because the earnings just started turning.
Speaker 2: All of them has been come upgrades. Retail property is
Speaker 2: doing really well and they all probably have earnings upgrades.
Speaker 2: So your center group, your vicinity, that's doing pretty well.
Speaker 2: Even some of the office space, which you know Childhol's
Speaker 2: doing is not too bad. Dexus is a different story.
Speaker 2: That's just going to be tough. And then the residential
Speaker 2: space is actually doing pretty good. You know, we like
Speaker 2: the retirement some of the retirement living space where you know,
Speaker 2: the recent listing of gem Life is doing very well.
Speaker 2: So we kind of prefer company that more have the
Speaker 2: self help right, so they are building all these properties
Speaker 2: in the area highly desirable. You know, they're going to
Speaker 2: do very good earning growth regardless you know, whether they
Speaker 2: might be build a micro pressure. So I think the
Speaker 2: reason will do okay, but it's more on neutral stands
Speaker 2: for the rest of the year because once the great
Speaker 2: they usually start underperforming as a sector. You know, when
Speaker 2: they don't have a proper growth for the company itself,
Speaker 2: they tend to underperform five month leading up to the
Speaker 2: first rate hike. So if we say the the year's
Speaker 2: ray high, so second half the year, that's pretty much
Speaker 2: it or the rebrates is pretty much done. So that's
Speaker 2: how it is more neutral. I think the housing is
Speaker 2: still looking okay, but it's you know, it's the other
Speaker 2: the some Yeah, it's the other face.
Speaker 1: I wanted to ask you something there. Goodman being in
Speaker 1: theory a property trust but in practice priced as an
Speaker 1: AI play with an extraordinarly ambitious agenda, one would naturally
Speaker 1: be skeptical except for the fact that Greg Goodman has
Speaker 1: an impeccable record through decades of getting it right in
Speaker 1: the end again and again. Are you comfortable with the
Speaker 1: price that's at now?
Speaker 2: I am. I hold Goodman. I think it's an incredible company,
Speaker 2: and I think what they're doing there is a disclaimer coming.
Speaker 2: I think what they're doing is great because they're repurposing
Speaker 2: a lot of their industrial property, right and they just
Speaker 2: keep them another leg of growth and you're delivering double
Speaker 2: did you return? It is great? You know into the
Speaker 2: data like it's great now, I do have, But rather saying,
Speaker 2: you know, Russia for all your eggs and buying lots
Speaker 2: of goodment, I'm a little bit skeptical, and you know,
Speaker 2: unsure about this whole data center space, whether there will
Speaker 2: be enough return to be generated in five years time, right,
Speaker 2: So you know, because there's hyperscalers putting so much money
Speaker 2: into the data center and evaluation going through the roof,
Speaker 2: we just don't know who's going to be the ultimate buyer,
Speaker 2: like saying ten years, who's going to buy them, and
Speaker 2: then whether there will be enough technology if the data
Speaker 2: center is still going to be in the current form,
Speaker 2: So maybe there's no terminal value for those and Goodmen
Speaker 2: instead of just buy and sell it, they want to
Speaker 2: hold it because normally with their other industrial property that's
Speaker 2: what they do. So they will manage. They will put
Speaker 2: them into a fund and the fund will manage it
Speaker 2: so they will be the owner of this property. So
Speaker 2: it's a little bit challenging for me to see ultimate
Speaker 2: value of data center. But for Goodmen, I do think
Speaker 2: they underperform the sector enormously last year. You know, I
Speaker 2: think it does look pretty good from the industrial perspective
Speaker 2: and the money they can make right now from those
Speaker 2: data center.
Speaker 1: Do you say Goodman underperformed the sector last year?
Speaker 2: Yeah, they did, so the sectors down If you compare
Speaker 2: Goodman and Charta Hall, I think something like thirty percent
Speaker 2: or more difference now Obviously the year before Goodman did
Speaker 2: really well because the data center. But it's just it
Speaker 2: does look like there's a bit of catch up to do,
Speaker 2: and industrial property is still doing pretty well, demand strong,
Speaker 2: and then meanwhile they're making good profit out of those
Speaker 2: making building those data center So you know, so I
Speaker 2: think it's it's something that I do like. I think
Speaker 2: for the time being, it's good. But I'm still working
Speaker 2: out this whole data center centeris because our portfolio can
Speaker 2: hold it and we can show other companies, so you know,
Speaker 2: we can take how that data center uncertainty.
Speaker 1: I certainly tune into your notion, your concept that the
Speaker 1: technology itself could change, and then you know, maybe data
Speaker 1: centers as we know them will not look anything like
Speaker 1: data centers that have been planned to be built right
Speaker 1: now that are getting such valuations. One last thing, and
Speaker 1: it's a kind of a reflection really of our market
Speaker 1: and its absence of tech and AI that we leave
Speaker 1: it to last, because there isn't really a part. I mean,
Speaker 1: Goodman has become a proxy AI play in the blue
Speaker 1: chip space, or at least the top of the market,
Speaker 1: and within the market, there is very little else. NEXTDC
Speaker 1: has been seems to be a very disappointing company in
Speaker 1: many ways. Is what do you think of a NEXTDC
Speaker 1: and do you of in recent times has been disappointing.
Speaker 1: Do you see any AI play within the ASX.
Speaker 2: I think, first of all NEXTDC again, it comes down
Speaker 2: I think it's done very well. If you want to
Speaker 2: have exposure to data center, it's just one all the
Speaker 2: contracts and everything's great. My thing is that again, I'm
Speaker 2: just not sure about ultimate value of those data center.
Speaker 2: I don't know if by building it today in five
Speaker 2: years you know who's going to be the next person
Speaker 2: to buy those assets. You know it's going to be
Speaker 2: harder to see. And then when I talk about technology
Speaker 2: goal change, you know what if there's a breakthrough that
Speaker 2: you can have data center in the middle of the forest,
Speaker 2: like in the middle of the.
Speaker 1: A data center in your basement.
Speaker 2: That's right, Yeah, why what if you just put something
Speaker 2: out of the building. So I think it's just really
Speaker 2: I don't know, because the technology changing so fast. So
Speaker 2: that's the thing. So I like it as a data
Speaker 2: center exposure, but I'm just not sure if I want that.
Speaker 2: I seen the exposure at the moment. Goodman gives me
Speaker 2: a quasi it's still got other assets in that sort
Speaker 2: of exposure in terms of the AI player and everything.
Speaker 2: I really think this is the year when you actually,
Speaker 2: rather than just AI exposure, it's the company that benefit
Speaker 2: from the AI. You know, it's the costs out. It's
Speaker 2: the secer for example. You know what is the sector
Speaker 2: that has the highest labor cost? You know, where there's healthcare,
Speaker 2: where there's banks, there's a lot of cost efficiency coming through.
Speaker 2: You know, we're hearing chatters overseas now, you know people
Speaker 2: talking about overseas banks. You know, one of the JP
Speaker 2: Morgan Stanley cheap Ecommas said that they think the banks
Speaker 2: is the growth stock of the future because there's so
Speaker 2: much cost that can come through with the AI efficiency.
Speaker 2: So I think this is a year people will distinguish
Speaker 2: on also win there a loser. People still trying to
Speaker 2: work it out of the AI, the development of the
Speaker 2: AI rather than just go to the physical AI exposure.
Speaker 2: You know, I would actually say some of the company
Speaker 2: tech companies be sold off recently. It potentially is the
Speaker 2: benefit beneficiary of those AI because they you know, they
Speaker 2: have big database RAA for example, big database, the proprietary database.
Speaker 2: You know, they actually working with some of the AI model,
Speaker 2: you know, so that is the beneficiary. And but the
Speaker 2: market at the moment is selling your tech not sure
Speaker 2: what it is, and then just all buy just direct
Speaker 2: chip exposure. So for me, it's the companies that will benefit.
Speaker 2: And then there's a lot I think companies will start
Speaker 2: talking about it in the next six months.
Speaker 1: So hard one just wrap. We're going to say at
Speaker 1: the start stock you really like stock you think you
Speaker 1: could avoid top of your head.
Speaker 2: Yeah, so the things that the stoker would avoid, it's
Speaker 2: probably temple on website this stage. I'm a little bit worried.
Speaker 2: One is it's expensive and that we're heading into a
Speaker 2: somewhat slow down sort of environment. Lots of expectations. I know,
Speaker 2: shampires fallen, just a little bit caret cautious on that front.
Speaker 2: The thing that's soccer like is actually you know what
Speaker 2: flight center. Yeah, because of the companies downwhere look at
Speaker 2: Godfrey's challenges and everything. Then we had the war last year,
Speaker 2: so now it's heading into an environment where you know,
Speaker 2: the travel is normalizing. Austria faced Australia as we love
Speaker 2: to travel overseas, so you know, demand environments put not
Speaker 2: too bad. And and then you're cycling some really weak coms.
Speaker 2: That means you're earning growth will come through at the
Speaker 2: same time. Corporate travel. The problem with corporate travel, and
Speaker 2: it's going through review of some of the you know,
Speaker 2: dodgy accounting and the like has now created, you know,
Speaker 2: opportunity for other corporate travel service provider like flight center.
Speaker 2: You know, in a way that you know, all the
Speaker 2: large companies that we great speed to, they're all now
Speaker 2: revising their corporate travel contracts. So you know, I think
Speaker 2: the next six month growth for travel or flight Center
Speaker 2: is going to be enormous.
Speaker 1: Really interesting. Parently convinced by both those calls, might I
Speaker 1: say especially the travel one. Yeah, absolutely, well, well you've
Speaker 1: got two extraordinary stories there. One obviously the extraordinary story
Speaker 1: of corporate travel being so bad that they left it.
Speaker 1: They've just basically left a big gap in the market,
Speaker 1: haven't they, And every corporate and every government department is
Speaker 1: going to have to review. Terrific. All right, Thank you
Speaker 1: very much for being on the show. Always great. We'll
Speaker 1: talk to you again during the year, I hope, but
Speaker 1: thank you for today.
Speaker 2: Thank you so much for having me and Best of
Speaker 2: Black with twenty twenty six.
Speaker 1: Thank you. That was Jim Baylor of ten Cap Folks.
Speaker 1: Terrific to talk to us always. So now you've got it. Okay,
Speaker 1: You've got Mark Jocum of Global XCTFS, who talked about
Speaker 1: the global markets. Then we talked specifically today about Australian
Speaker 1: share opportunities stop picks. Next week, we're going to talk
Speaker 1: about property opportunities in twenty twenty six, and we're going
Speaker 1: to wrap it over Will Hamilton at the end of
Speaker 1: next week. Talk to you soon.