1 00:00:03,520 --> 00:00:06,470 Sean Aylmer: Welcome to The Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,950 --> 00:00:10,300 Sean Aylmer: There's been so much volatility on share markets lately both 3 00:00:10,300 --> 00:00:15,880 Sean Aylmer: here and overseas. Lockdowns, economies reopening, inflation fears, high energy prices, 4 00:00:16,210 --> 00:00:20,390 Sean Aylmer: geopolitical tensions, Chinese property giants collapsing, they're all combining to 5 00:00:20,390 --> 00:00:23,310 Sean Aylmer: make it a wild ride for investors. I wanted to 6 00:00:23,310 --> 00:00:26,410 Sean Aylmer: speak to an expert today about the drivers of market movements, 7 00:00:26,570 --> 00:00:29,250 Sean Aylmer: what the outlook is for equities and where investors might 8 00:00:29,250 --> 00:00:32,870 Sean Aylmer: find an opportunity or two. Kate Howard has been managing 9 00:00:32,870 --> 00:00:37,040 Sean Aylmer: the Fidelity Australian Opportunity Strategy since 2012, with more than $2 billion 10 00:00:37,729 --> 00:00:41,019 Sean Aylmer: under management. The fund, which is part of Fidelity International, 11 00:00:41,290 --> 00:00:45,019 Sean Aylmer: is a selection of between 40 and 70 Australian companies. Kate 12 00:00:45,020 --> 00:00:47,360 Sean Aylmer: has been recognised for years in a row as one of the 13 00:00:47,360 --> 00:00:50,370 Sean Aylmer: top 30 female fund managers in the world, the only 14 00:00:50,430 --> 00:00:52,630 Sean Aylmer: Australian to make the list. Kate Howitt, welcome to Fear 15 00:00:52,630 --> 00:00:52,729 Sean Aylmer: and Greed. 16 00:00:52,729 --> 00:00:54,120 Kate Howitt: Great. Thanks to be here. 17 00:00:55,130 --> 00:00:57,730 Sean Aylmer: How do you characterise what's going on in equity markets? 18 00:00:57,930 --> 00:01:00,690 Sean Aylmer: Every morning, I talk about this and there have been 19 00:01:00,690 --> 00:01:03,710 Sean Aylmer: some pretty significant swings, particularly in recent weeks. 20 00:01:04,319 --> 00:01:08,590 Kate Howitt: Well, we've had really strong rebound from the lows that 21 00:01:08,590 --> 00:01:12,330 Kate Howitt: we hit about 18 months ago when COVID really started 22 00:01:12,330 --> 00:01:15,319 Kate Howitt: to impact through to the world. Some markets have been 23 00:01:15,319 --> 00:01:19,369 Kate Howitt: on a great run for over a year now and 24 00:01:19,370 --> 00:01:22,230 Kate Howitt: they're starting to run out of puff. The question is 25 00:01:22,230 --> 00:01:26,410 Kate Howitt: whether that's just taking a healthy pause to refresh or 26 00:01:26,410 --> 00:01:30,190 Kate Howitt: whether the underlying drivers for the market are really starting 27 00:01:30,190 --> 00:01:30,690 Kate Howitt: to shift. 28 00:01:31,050 --> 00:01:33,650 Sean Aylmer: Okay. When you talk about underlying drivers, you talk about 29 00:01:33,830 --> 00:01:38,190 Sean Aylmer: fundamentals, flows and valuations, those three concepts. Can you just 30 00:01:38,190 --> 00:01:40,270 Sean Aylmer: run through what you mean by it and where you 31 00:01:40,270 --> 00:01:42,250 Sean Aylmer: see they are? If we start with fundamentals. 32 00:01:42,600 --> 00:01:45,400 Kate Howitt: Yeah, because mostly, what I'm doing day to day running 33 00:01:45,400 --> 00:01:49,160 Kate Howitt: the opportunity strategy is looking for good individual companies, but 34 00:01:49,160 --> 00:01:51,059 Kate Howitt: you do every so often, have to step back and say, 35 00:01:51,060 --> 00:01:54,110 Kate Howitt: where are markets now? Where are they headed? And I've 36 00:01:54,110 --> 00:01:56,520 Kate Howitt: just always found this a really good way to break 37 00:01:56,520 --> 00:01:59,720 Kate Howitt: the question up. What's going on with fundamentals and really 38 00:01:59,720 --> 00:02:03,470 Kate Howitt: that comes down to our earnings and corporate cash flows 39 00:02:04,290 --> 00:02:07,840 Kate Howitt: going up or are they compressing from here? What's the 40 00:02:07,840 --> 00:02:11,290 Kate Howitt: basic economic drivers of these businesses? Then, you've got to 41 00:02:11,290 --> 00:02:14,530 Kate Howitt: ask yourself about the flows. Is money coming into the 42 00:02:14,530 --> 00:02:17,910 Kate Howitt: stock market or are people fearful and withdrawing money from 43 00:02:17,910 --> 00:02:21,669 Kate Howitt: the stock market? Because share prices is just like any 44 00:02:21,669 --> 00:02:23,930 Kate Howitt: other commodity. The price is going to be set by 45 00:02:23,930 --> 00:02:27,410 Kate Howitt: supply and demand. If there's more demand than there is supply, 46 00:02:27,410 --> 00:02:29,089 Kate Howitt: the price is going to go up and vice versa, 47 00:02:29,260 --> 00:02:31,500 Kate Howitt: so it's actually important to step back and look at 48 00:02:31,500 --> 00:02:34,500 Kate Howitt: the context of the equity market. And then, valuations are 49 00:02:34,500 --> 00:02:38,030 Kate Howitt: also a part of the equation because if things are 50 00:02:38,050 --> 00:02:40,900 Kate Howitt: being offered at a rock bottom price, they're more attractive, 51 00:02:40,900 --> 00:02:42,850 Kate Howitt: people are more likely to buy and they've got more 52 00:02:42,850 --> 00:02:47,399 Kate Howitt: room to move upwards. Whereas if valuations are more stretched, then that's 53 00:02:47,400 --> 00:02:50,190 Kate Howitt: going to make people a bit more hesitant and put 54 00:02:50,190 --> 00:02:52,100 Kate Howitt: a bit of a cap on how far markets can go. 55 00:02:52,100 --> 00:02:55,100 Kate Howitt: So if you can get your head around those three aspects, 56 00:02:55,100 --> 00:02:57,440 Kate Howitt: you can generally get a bit of a read on 57 00:02:57,780 --> 00:03:01,399 Kate Howitt: where the markets are poised to really perform strongly or weakly 58 00:03:01,550 --> 00:03:04,280 Kate Howitt: or maybe somewhere in between. If we think about where 59 00:03:04,280 --> 00:03:07,960 Kate Howitt: we are now, the fundamentals, I would characterise this as 60 00:03:07,960 --> 00:03:11,120 Kate Howitt: we're moving into the phase of learning to live with COVID. 61 00:03:11,669 --> 00:03:14,310 Kate Howitt: And we're seeing this at the national level with the 62 00:03:14,310 --> 00:03:19,210 Kate Howitt: various governments adjusting their strategies from an elimination type strategy 63 00:03:19,210 --> 00:03:23,120 Kate Howitt: to an accommodation strategy and that's really been enabled by 64 00:03:23,120 --> 00:03:26,930 Kate Howitt: vaccines and the strong rollout that we've had in vaccines. 65 00:03:27,450 --> 00:03:33,290 Kate Howitt: That is then rippling through to individuals, corporates having to 66 00:03:33,290 --> 00:03:36,860 Kate Howitt: adjust their business models to reopen, but in a way 67 00:03:36,860 --> 00:03:40,640 Kate Howitt: that's slightly different than where we were before the pandemic hit. 68 00:03:40,640 --> 00:03:44,450 Kate Howitt: If you think about flows, we've had enormous flows into 69 00:03:44,450 --> 00:03:46,910 Kate Howitt: equity markets and this is on the back of the 70 00:03:46,910 --> 00:03:51,500 Kate Howitt: enormous money creation and stimulatory policies that we've had from 71 00:03:51,500 --> 00:03:56,650 Kate Howitt: most major central banks and governments around the world. There 72 00:03:56,650 --> 00:04:00,300 Kate Howitt: was a very big stimulus put into the global economy 73 00:04:00,540 --> 00:04:03,920 Kate Howitt: to offset the slow down and shut down impacts of 74 00:04:03,950 --> 00:04:07,180 Kate Howitt: the pandemic, so that's created a lot of money looking 75 00:04:07,180 --> 00:04:10,920 Kate Howitt: for a home and that money is flowing into, I mean, 76 00:04:10,920 --> 00:04:13,250 Kate Howitt: you can see it in the property market, you can see it in the 77 00:04:13,250 --> 00:04:16,970 Kate Howitt: stock market, a lot of major asset classes have really 78 00:04:16,970 --> 00:04:18,790 Kate Howitt: done well. We haven't been able to spend our money 79 00:04:18,790 --> 00:04:22,130 Kate Howitt: on going on a holiday or getting a haircut, but 80 00:04:22,390 --> 00:04:24,900 Kate Howitt: we're able to go out there and buy some assets. 81 00:04:25,300 --> 00:04:29,760 Kate Howitt: And the valuations are stretched in some areas of the market and 82 00:04:29,950 --> 00:04:33,589 Kate Howitt: really quite reasonable in others, so it's a bit of a mixed bag 83 00:04:33,589 --> 00:04:35,080 Kate Howitt: on the valuation side. 84 00:04:36,089 --> 00:04:39,130 Sean Aylmer: Just on valuation, do you hear a lot of people discussing, sure, 85 00:04:39,760 --> 00:04:44,070 Sean Aylmer: valuations are stretched, but what's your alternate because bond rates 86 00:04:44,070 --> 00:04:45,840 Sean Aylmer: are so low? How does that fit into it? 87 00:04:46,410 --> 00:04:50,310 Kate Howitt: Yeah. This circles back to the question about flows also. 88 00:04:51,589 --> 00:04:54,910 Kate Howitt: One of the biggest changes I've seen throughout my career 89 00:04:55,060 --> 00:04:58,440 Kate Howitt: is a shift in who's participating in markets. It used 90 00:04:58,440 --> 00:05:01,430 Kate Howitt: to be that pretty much everyone who was buying equities 91 00:05:01,480 --> 00:05:04,930 Kate Howitt: was playing some kind of buy low, sell high, which 92 00:05:04,930 --> 00:05:07,890 Kate Howitt: is compare the price to the valuation and if the 93 00:05:07,890 --> 00:05:10,630 Kate Howitt: price relative to the valuation is low, then you buy it 94 00:05:10,630 --> 00:05:13,480 Kate Howitt: and then when that flips around and something's overpriced, you 95 00:05:13,480 --> 00:05:16,279 Kate Howitt: sell it, so a valuation based strategy of some sort 96 00:05:16,279 --> 00:05:20,450 Kate Howitt: or another. Now, you've got a lot more participants who 97 00:05:20,450 --> 00:05:23,779 Kate Howitt: are not ever trying to ask the question of what's 98 00:05:23,779 --> 00:05:25,480 Kate Howitt: a fair value for this asset. They're buying it for 99 00:05:25,480 --> 00:05:27,740 Kate Howitt: some other reason. And that could be as basic as 100 00:05:27,790 --> 00:05:30,630 Kate Howitt: index funds, which just come in and buy shares because 101 00:05:30,630 --> 00:05:32,940 Kate Howitt: they happen to be in a certain index. You've got 102 00:05:32,940 --> 00:05:35,870 Kate Howitt: factor funds, you've got risk parity funds, you've got thematic 103 00:05:35,870 --> 00:05:39,950 Kate Howitt: funds. And then, two that have really come to the 104 00:05:39,950 --> 00:05:43,529 Kate Howitt: fore in the post pandemic period, two classes. On the 105 00:05:43,529 --> 00:05:46,140 Kate Howitt: institutional side, you've got what I call bond market refugees. 106 00:05:46,140 --> 00:05:50,270 Kate Howitt: These are very large investors who would like to, their 107 00:05:50,270 --> 00:05:52,770 Kate Howitt: normal homeland is in the bond market where they can 108 00:05:52,770 --> 00:05:56,279 Kate Howitt: get a nice income and low volatility, but of course, 109 00:05:56,279 --> 00:05:58,969 Kate Howitt: bonds now have been, the price of bonds has been 110 00:05:59,010 --> 00:06:01,779 Kate Howitt: pushed so high that the yield that you get on 111 00:06:01,779 --> 00:06:04,700 Kate Howitt: the bonds has been pushed, in real terms, to be 112 00:06:04,700 --> 00:06:07,979 Kate Howitt: negative in a lot of cases. So these people have 113 00:06:07,980 --> 00:06:10,600 Kate Howitt: been forced out of their homeland and they've become refugees 114 00:06:10,600 --> 00:06:14,000 Kate Howitt: into the equity market to try to get some return 115 00:06:14,390 --> 00:06:16,500 Kate Howitt: from the yield that you can get from stocks. 116 00:06:16,800 --> 00:06:20,680 Sean Aylmer: Kate, I've got to interrupt. I've never, ever thought of a bond trader as 117 00:06:20,680 --> 00:06:23,110 Sean Aylmer: a refugee, but I just want to point that out. 118 00:06:24,410 --> 00:06:26,500 Sean Aylmer: They don't go well together, but I'm going to use 119 00:06:26,500 --> 00:06:27,770 Sean Aylmer: it from now on, I'm going to steal it from 120 00:06:27,770 --> 00:06:28,429 Sean Aylmer: you and use it. 121 00:06:29,710 --> 00:06:32,760 Kate Howitt: It's the asset allocators who are saying, " We just can't 122 00:06:32,760 --> 00:06:35,630 Kate Howitt: get the return. We want this return, we can't get 123 00:06:35,630 --> 00:06:38,659 Kate Howitt: it." Yeah. So you've got these bond back refugees. The 124 00:06:38,730 --> 00:06:42,810 Kate Howitt: other category that's come up is non presence of participants 125 00:06:43,110 --> 00:06:45,270 Kate Howitt: and the obvious one here or what I call on the 126 00:06:45,270 --> 00:06:46,909 Kate Howitt: retail side, the pandemic punters. 127 00:06:46,910 --> 00:06:47,150 Sean Aylmer: Right. 128 00:06:48,100 --> 00:06:50,320 Kate Howitt: We've heard a lot about these in the US, the 129 00:06:50,860 --> 00:06:55,260 Kate Howitt: GameStop phenomenon, Robinhood traders. And there seems to be a 130 00:06:55,260 --> 00:07:00,279 Kate Howitt: reasonably large cohort of people where they can't access pokies, 131 00:07:00,279 --> 00:07:02,570 Kate Howitt: they can't go to the races, can't go to the casino, 132 00:07:02,770 --> 00:07:06,550 Kate Howitt: but they can buy some stocks. And again, it's not 133 00:07:06,550 --> 00:07:10,590 Kate Howitt: a sober assessment of price versus value. This is something 134 00:07:10,590 --> 00:07:14,110 Kate Howitt: exciting to fill my lockdown day, so it's a very 135 00:07:14,110 --> 00:07:14,970 Kate Howitt: different market. This is not your grandfather's market. 136 00:07:18,000 --> 00:07:20,460 Sean Aylmer: Can I add another group in? I'm just interested in your take on it. It's 137 00:07:20,810 --> 00:07:24,840 Sean Aylmer: the super funds and specifically, we're talking about infrastructure assets 138 00:07:24,840 --> 00:07:28,140 Sean Aylmer: and the fact that they're all jumping into buy these infrastructure assets, people 139 00:07:28,140 --> 00:07:30,619 Sean Aylmer: like those assets, because they're long- term, they have some 140 00:07:30,860 --> 00:07:35,580 Sean Aylmer: surety of tenure in terms of contracts and income. So they're 141 00:07:35,670 --> 00:07:38,690 Sean Aylmer: not bond refugees, they're not pandemic punters. Are the big 142 00:07:38,690 --> 00:07:42,930 Sean Aylmer: super funds, Canada and Australia particularly, buying assets like Sydney Airport, 143 00:07:43,410 --> 00:07:44,870 Sean Aylmer: how do they fit into this story? 144 00:07:45,340 --> 00:07:48,500 Kate Howitt: Well, it is the same phenomenon as the bond market refugees. 145 00:07:48,940 --> 00:07:53,540 Kate Howitt: They want long dated cashflows. So they want a certain 146 00:07:53,540 --> 00:07:56,270 Kate Howitt: degree of certainty, they want a certain degree of income 147 00:07:56,500 --> 00:07:59,780 Kate Howitt: for many, many years. So then they have to look 148 00:07:59,780 --> 00:08:01,710 Kate Howitt: at these various assets and say, " Well, if I want 149 00:08:01,710 --> 00:08:03,830 Kate Howitt: to own this underlying asset, would I prefer to own 150 00:08:03,830 --> 00:08:08,190 Kate Howitt: it in the listed environment or in an unlisted space?" 151 00:08:08,430 --> 00:08:11,489 Kate Howitt: And the difference between those, of course, is the ability 152 00:08:11,490 --> 00:08:14,350 Kate Howitt: to trade, so liquidity, but if they don't need that, 153 00:08:14,500 --> 00:08:16,840 Kate Howitt: then the difference really becomes just how frequently you mark 154 00:08:16,940 --> 00:08:20,960 Kate Howitt: to market, so the apparent volatility. Something that is listed on 155 00:08:20,960 --> 00:08:22,730 Kate Howitt: the market is going to be marked to market every 156 00:08:22,730 --> 00:08:26,150 Kate Howitt: day and throughout the day. Something that you own in an unlisted 157 00:08:26,730 --> 00:08:30,410 Kate Howitt: way is just going to be valued twice a year, 158 00:08:30,410 --> 00:08:32,850 Kate Howitt: maybe four times a year, so that's a lot more 159 00:08:32,850 --> 00:08:36,920 Kate Howitt: attractive from the volatility perceptions of their portfolio. 160 00:08:37,200 --> 00:08:38,599 Sean Aylmer: Stay with me, Kate, we'll be back in a minute. 161 00:08:44,030 --> 00:08:50,120 Sean Aylmer: I'm talking to Kate Howitt, portfolio manager for the Fidelity Australian Opportunities Fund. Okay. We've 162 00:08:50,120 --> 00:08:53,450 Sean Aylmer: talked about fundamentals, flows and valuations. We know about bond 163 00:08:53,450 --> 00:08:57,200 Sean Aylmer: refugees now, pandemic punters. Putting all that into the mix, 164 00:08:57,570 --> 00:09:02,100 Sean Aylmer: what sectors, what companies do you think are worth investors 165 00:09:02,100 --> 00:09:04,839 Sean Aylmer: having a look at over the next 3, 6, 12 months? 166 00:09:05,800 --> 00:09:08,140 Kate Howitt: Look, for the most part, I would say nothing has changed. 167 00:09:08,140 --> 00:09:12,360 Kate Howitt: You're still looking for solid businesses that have a degree 168 00:09:12,360 --> 00:09:15,729 Kate Howitt: of competitive advantage, that can generate high returns, that can 169 00:09:15,730 --> 00:09:21,219 Kate Howitt: reinvest those returns to deliver growth, that have a strong, capable, 170 00:09:21,270 --> 00:09:25,059 Kate Howitt: high integrity management team who can respond when the world 171 00:09:25,059 --> 00:09:29,240 Kate Howitt: keeps changing. I don't think any of that changes. My 172 00:09:29,240 --> 00:09:33,449 Kate Howitt: approach with the opportunities strategy in Australia is to recognise 173 00:09:33,450 --> 00:09:37,270 Kate Howitt: it's a very narrow marketplace. And really, my response to 174 00:09:37,270 --> 00:09:39,640 Kate Howitt: that is to say, I want to own the best 175 00:09:39,640 --> 00:09:42,690 Kate Howitt: of all the different types of businesses because if you 176 00:09:42,690 --> 00:09:45,450 Kate Howitt: really constrain yourself down, if you were to say "I'm just 177 00:09:45,450 --> 00:09:47,590 Kate Howitt: a high- growth tech investor," you're really not going to 178 00:09:47,590 --> 00:09:49,849 Kate Howitt: get that many names on your list to choose from 179 00:09:50,050 --> 00:09:53,370 Kate Howitt: and you're going to have a very narrow and undiversified portfolio. 180 00:09:53,870 --> 00:09:56,420 Kate Howitt: I like to look across pretty much all the sectors 181 00:09:56,420 --> 00:09:59,070 Kate Howitt: of the market and see what's the best name in 182 00:09:59,070 --> 00:10:02,110 Kate Howitt: that sector for now and that means that you can 183 00:10:02,110 --> 00:10:06,140 Kate Howitt: end up with a portfolio that looks quite schizophrenic. I 184 00:10:06,140 --> 00:10:09,380 Kate Howitt: have stocks that will work really well if the valuations 185 00:10:09,580 --> 00:10:12,950 Kate Howitt: of high growth tech companies continue to be stretched. WiseTech 186 00:10:12,950 --> 00:10:16,100 Kate Howitt: is an excellent business in that regard, a wonderful software company, 187 00:10:16,100 --> 00:10:20,650 Kate Howitt: but the valuation, it's on a triple digit PE (Price to Earnings ratio). I wouldn't 188 00:10:20,650 --> 00:10:22,700 Kate Howitt: want to have a portfolio that was just full of 189 00:10:22,780 --> 00:10:26,670 Kate Howitt: those sorts of businesses. The fund also has a large 190 00:10:26,670 --> 00:10:30,480 Kate Howitt: position in BHP, which of course, is on a single 191 00:10:30,500 --> 00:10:33,900 Kate Howitt: very low PE, which is a sign that the earnings, 192 00:10:33,940 --> 00:10:37,270 Kate Howitt: trailing earnings, have been very high because of the iron ore price. So again, 193 00:10:37,429 --> 00:10:40,210 Kate Howitt: you wouldn't want to have your portfolio just exposed to 194 00:10:40,210 --> 00:10:44,690 Kate Howitt: something that was potentially at peak earnings. I like to 195 00:10:44,690 --> 00:10:45,949 Kate Howitt: have all the bases covered. 196 00:10:46,380 --> 00:10:50,750 Sean Aylmer: Okay. You're learning the lesson from that, in a sense, it's a diversification to some point, 197 00:10:50,750 --> 00:10:52,819 Sean Aylmer: but you're picking the best of the banks, the best 198 00:10:52,940 --> 00:10:53,381 Sean Aylmer: of the resource stocks, the best of all oil and gas. 199 00:10:53,381 --> 00:10:53,381 Kate Howitt: Exactly. 200 00:10:53,381 --> 00:10:53,382 Sean Aylmer: That's the idea of it. 201 00:10:53,382 --> 00:10:59,720 Kate Howitt: And that changes through time because for example, if you 202 00:10:59,720 --> 00:11:02,270 Kate Howitt: think about what's the best stock to own in oil 203 00:11:02,270 --> 00:11:06,300 Kate Howitt: and gas, the big factor that's driving through there is ESG (Environmental Social Governance) 204 00:11:06,300 --> 00:11:09,710 Kate Howitt: and the need to decarbonise. The big change that's happened 205 00:11:09,710 --> 00:11:12,130 Kate Howitt: there in, I would say, the past 12 months, is 206 00:11:12,130 --> 00:11:15,500 Kate Howitt: that ESG has gone from being an issue around voting 207 00:11:15,500 --> 00:11:19,600 Kate Howitt: at the AGM to being a matter of competitive advantage. 208 00:11:20,020 --> 00:11:24,880 Kate Howitt: So if you think about what is the global energy 209 00:11:24,880 --> 00:11:28,700 Kate Howitt: sector going to look like in 2040 or 2050? The whole 210 00:11:28,700 --> 00:11:32,380 Kate Howitt: economy runs on energy, so we will have an energy sector, 211 00:11:33,000 --> 00:11:36,870 Kate Howitt: but is it going to be the Exxons and the ConocoPhillips, 212 00:11:37,260 --> 00:11:41,530 Kate Howitt: the hydrocarbon stocks that dominate that global industry today? Or 213 00:11:41,530 --> 00:11:44,709 Kate Howitt: is it going to be hydrogen companies and ammonia companies? 214 00:11:44,990 --> 00:11:46,610 Kate Howitt: And if you think it's going to be the latter, 215 00:11:46,610 --> 00:11:48,130 Kate Howitt: then there's going to be a lot of change and 216 00:11:48,130 --> 00:11:50,439 Kate Howitt: the future winners in that sector are going to be 217 00:11:50,440 --> 00:11:54,580 Kate Howitt: the ones that will do the fastest pivot away from 218 00:11:54,580 --> 00:11:58,710 Kate Howitt: the heritage and towards these new growth businesses. That leads you, 219 00:11:58,710 --> 00:12:01,809 Kate Howitt: in the Australian context, to a company like Santos, which, 220 00:12:01,809 --> 00:12:05,350 Kate Howitt: almost by virtue of a historical accident, has become one 221 00:12:05,350 --> 00:12:08,280 Kate Howitt: of the most advanced companies in carbon capture and storage, 222 00:12:08,420 --> 00:12:12,160 Kate Howitt: which will allow it to pivot into producing hydrogen and 223 00:12:12,160 --> 00:12:14,050 Kate Howitt: position it well for this future world. 224 00:12:15,870 --> 00:12:18,829 Sean Aylmer: Okay. Stepping away from ESG, one of the big issues facing global markets at the 225 00:12:18,830 --> 00:12:21,729 Sean Aylmer: moment is inflation, whether it's transitory, whether it's permanent, we're 226 00:12:21,730 --> 00:12:27,199 Sean Aylmer: seeing semiconductor chip shortages, higher transport costs, how do you think that inflation 227 00:12:27,200 --> 00:12:30,189 Sean Aylmer: question will flow through the local market? 228 00:12:30,570 --> 00:12:34,210 Kate Howitt: Yeah, inflation is such an interesting question because pretty much 229 00:12:34,210 --> 00:12:38,130 Kate Howitt: everyone working in financial markets today was not working in 230 00:12:38,130 --> 00:12:41,870 Kate Howitt: financial markets back in the seventies, the last time that we had really 231 00:12:41,870 --> 00:12:46,910 Kate Howitt: significant inflation. Back then, my elder statesman colleagues tell me 232 00:12:46,910 --> 00:12:50,170 Kate Howitt: that you would run two sets of books for your companies. 233 00:12:50,170 --> 00:12:54,050 Kate Howitt: You would have your real forecast and your inflation adjusted nominal forecast. 234 00:12:54,190 --> 00:12:56,510 Kate Howitt: I mean, no one's been doing that for decades. So 235 00:12:56,510 --> 00:13:00,910 Kate Howitt: in some ways, it's uncharted territory for most market participants. 236 00:13:01,130 --> 00:13:04,689 Kate Howitt: That in itself means it's not priced in and therefore, 237 00:13:04,690 --> 00:13:07,860 Kate Howitt: something to keep a really good eye on. Now, we know, 238 00:13:07,860 --> 00:13:11,090 Kate Howitt: as you said, right now, we've got transitory inflation from 239 00:13:11,090 --> 00:13:13,900 Kate Howitt: all the bottlenecks and supply chain issues from the pandemic. 240 00:13:14,120 --> 00:13:17,660 Kate Howitt: That's certain in the near term. What's certain in the long- 241 00:13:17,660 --> 00:13:20,309 Kate Howitt: term is that we will have what we're starting to 242 00:13:20,500 --> 00:13:24,439 Kate Howitt: call greenflation, which is, so many parts of the global 243 00:13:24,440 --> 00:13:27,700 Kate Howitt: economy that are done in a cheap hydrocarbon based way 244 00:13:27,700 --> 00:13:30,609 Kate Howitt: are going to have to transition to being done in 245 00:13:30,610 --> 00:13:36,030 Kate Howitt: a more expensive decarbonised away, so there's absolutely an inflationary 246 00:13:36,179 --> 00:13:39,260 Kate Howitt: impact coming through. The cost of that transition is, you know, 247 00:13:39,260 --> 00:13:42,770 Kate Howitt: at least a hundred trillion US. If anyone tries to 248 00:13:42,770 --> 00:13:45,540 Kate Howitt: get a return on that investment, then even just those 249 00:13:45,540 --> 00:13:49,280 Kate Howitt: return expectations are going to drive inflation. The interesting bit is, 250 00:13:49,280 --> 00:13:52,130 Kate Howitt: what happens in the middle of those? Are we going 251 00:13:52,130 --> 00:13:58,360 Kate Howitt: to transition from this temporary bottleneck inflation back to the 252 00:13:58,570 --> 00:14:03,950 Kate Howitt: secular stagnation, prices stay low because there are excess savings, 253 00:14:04,150 --> 00:14:07,929 Kate Howitt: and then later on get a greenflationary impact? Or are 254 00:14:07,929 --> 00:14:10,410 Kate Howitt: you going to find that wage inflation is going to 255 00:14:10,800 --> 00:14:13,280 Kate Howitt: bridge the gap between those two and we are, from 256 00:14:13,280 --> 00:14:16,979 Kate Howitt: here on, in a high inflationary period for potentially a 257 00:14:16,980 --> 00:14:19,730 Kate Howitt: couple of decades? That's, I think, the interesting bit is 258 00:14:19,770 --> 00:14:21,070 Kate Howitt: what happens in the medium term? 259 00:14:21,320 --> 00:14:23,000 Sean Aylmer: What do you think will happen in the medium term? 260 00:14:24,620 --> 00:14:28,760 Kate Howitt: Well, there will be policy implications to come through, but 261 00:14:28,760 --> 00:14:32,260 Kate Howitt: the interesting thing is the fundamental shift that we've had 262 00:14:32,260 --> 00:14:38,200 Kate Howitt: where central banks earn their stripes from defeating inflation going 263 00:14:38,200 --> 00:14:41,470 Kate Howitt: back to the 1980s. Whereas now, we've got our own 264 00:14:41,470 --> 00:14:44,010 Kate Howitt: Phil Lowe who has been agitating for years to try 265 00:14:44,010 --> 00:14:46,970 Kate Howitt: to get some wage inflation come through. So you've got 266 00:14:46,970 --> 00:14:50,370 Kate Howitt: central banks now who are trying to fan the flames 267 00:14:50,520 --> 00:14:54,080 Kate Howitt: of inflation. Now, they haven't been terribly successful at that. They're 268 00:14:54,080 --> 00:14:56,630 Kate Howitt: hoping to be successful at that and they're hoping to 269 00:14:56,630 --> 00:15:00,760 Kate Howitt: be able to damp down those inflationary flames before they 270 00:15:00,760 --> 00:15:04,710 Kate Howitt: get too strong. I think that's the wildcard now, it's 271 00:15:05,050 --> 00:15:09,060 Kate Howitt: the policy on both the monetary side and the fiscal side is 272 00:15:09,060 --> 00:15:12,800 Kate Howitt: now pushing in an inflationary direction. Who would have thought, 273 00:15:12,800 --> 00:15:16,440 Kate Howitt: here in Australia, that we would have a coalition government 274 00:15:16,490 --> 00:15:18,811 Kate Howitt: that would do such a deeply stimulatory budget? 275 00:15:18,811 --> 00:15:19,501 Sean Aylmer: Yeah, yeah, quite incredible. 276 00:15:19,501 --> 00:15:23,900 Kate Howitt: This is what the pandemic has done, where every fiscal hawk in 277 00:15:23,900 --> 00:15:27,160 Kate Howitt: the world has turned into a dove, so everything is 278 00:15:27,160 --> 00:15:29,060 Kate Howitt: lined up to push that inflation through. 279 00:15:30,130 --> 00:15:33,460 Sean Aylmer: I mentioned earlier the international recognition you've received, Kate, as a 280 00:15:33,460 --> 00:15:36,290 Sean Aylmer: fund manager, one of the top 30 female fund managers in the world. 281 00:15:36,290 --> 00:15:39,590 Sean Aylmer: That's four years in a row you've achieved that. Just 7% of Australian 282 00:15:39,590 --> 00:15:42,710 Sean Aylmer: based funds, though, are run by women. Why is that 283 00:15:42,710 --> 00:15:44,440 Sean Aylmer: and how do we get more balance? 284 00:15:44,870 --> 00:15:48,140 Kate Howitt: Oh, look, there are so many factors. It would be 285 00:15:48,140 --> 00:15:50,650 Kate Howitt: great if there was just one switch we could flick 286 00:15:50,950 --> 00:15:54,750 Kate Howitt: that would change that, but there's so many factors. You can go all 287 00:15:54,750 --> 00:15:57,960 Kate Howitt: the way back to high school girls. I hate to 288 00:15:57,960 --> 00:16:00,370 Kate Howitt: break it to you, but the finance industry does not 289 00:16:00,370 --> 00:16:03,060 Kate Howitt: have a great standing with girls who are trying to 290 00:16:03,380 --> 00:16:07,610 Kate Howitt: consider their future career path. The finance industry portrays itself, 291 00:16:08,110 --> 00:16:10,940 Kate Howitt: in some ways, in Wolf of Wall Street terms and 292 00:16:11,960 --> 00:16:15,180 Kate Howitt: that's not attractive to a lot of young women out there trying 293 00:16:15,180 --> 00:16:18,280 Kate Howitt: to decide where they're going to devote the effort of their career. 294 00:16:18,830 --> 00:16:20,010 Kate Howitt: In some ways, we've got to do a bit of 295 00:16:20,010 --> 00:16:24,560 Kate Howitt: a rebranding and explain that financial intermediation helps people solve 296 00:16:24,560 --> 00:16:29,910 Kate Howitt: problems in the community, it doesn't just make finance practitioners wealthy. 297 00:16:30,510 --> 00:16:32,750 Kate Howitt: That would go a long way. I think the industry 298 00:16:32,940 --> 00:16:35,200 Kate Howitt: is doing a lot better in the next steps of 299 00:16:35,200 --> 00:16:39,040 Kate Howitt: really going out there and trying to actively cultivate relationships 300 00:16:39,040 --> 00:16:41,510 Kate Howitt: with women in their university years to get them to 301 00:16:41,510 --> 00:16:44,420 Kate Howitt: consider careers in finance, but then, we've got to do 302 00:16:44,420 --> 00:16:49,210 Kate Howitt: better at retaining them through those critical periods because the 303 00:16:49,210 --> 00:16:52,220 Kate Howitt: time in a woman's life when she is building up 304 00:16:52,220 --> 00:16:57,370 Kate Howitt: her investment skills, investment reputation, is generally going to overlap 305 00:16:57,450 --> 00:17:02,080 Kate Howitt: with those really tricky early family years. I was promoted 306 00:17:02,340 --> 00:17:05,840 Kate Howitt: from analyst to portfolio manager while I was on maternity 307 00:17:05,840 --> 00:17:09,420 Kate Howitt: leave and that was the timing. And if I hadn't 308 00:17:09,420 --> 00:17:11,830 Kate Howitt: have been promoted at that point, then I wouldn't have 309 00:17:11,830 --> 00:17:14,540 Kate Howitt: had the time to build up the track record to 310 00:17:14,540 --> 00:17:18,930 Kate Howitt: give clients confidence to award me mandates. So we've got 311 00:17:18,930 --> 00:17:22,570 Kate Howitt: to do a lot better job at helping women during 312 00:17:22,570 --> 00:17:26,570 Kate Howitt: that early phase of their career. And then, the next 313 00:17:26,570 --> 00:17:30,149 Kate Howitt: big lever is clients have to be prepared to back 314 00:17:30,210 --> 00:17:34,149 Kate Howitt: women and no one, everyone has to get a first 315 00:17:34,150 --> 00:17:37,910 Kate Howitt: client at some point. I remember, lots of time, pounding 316 00:17:37,910 --> 00:17:40,970 Kate Howitt: the pavements, talking to people, telling them my story, telling 317 00:17:40,970 --> 00:17:43,399 Kate Howitt: them what I intended to do with the portfolio, showing them 318 00:17:43,760 --> 00:17:47,310 Kate Howitt: my track record on a pilot, but I needed someone 319 00:17:47,310 --> 00:17:50,619 Kate Howitt: to finally, once you get someone who'll take a chance 320 00:17:50,619 --> 00:17:52,640 Kate Howitt: with you, then others are prepared to come in. So 321 00:17:52,640 --> 00:17:55,010 Kate Howitt: we need clients to also have a bit of risk 322 00:17:55,010 --> 00:17:57,050 Kate Howitt: taking in terms of who they will back at an 323 00:17:57,050 --> 00:17:57,830 Kate Howitt: early stage. 324 00:17:59,350 --> 00:17:59,500 Sean Aylmer: And you remember your first client, no doubt? 325 00:18:00,280 --> 00:18:02,130 Kate Howitt: Oh, I do. And I think of them very fondly. 326 00:18:02,460 --> 00:18:03,850 Sean Aylmer: Kate, thank you for talking to Fear and Greed. 327 00:18:04,350 --> 00:18:04,770 Kate Howitt: Thank you very much. 328 00:18:05,290 --> 00:18:08,570 Sean Aylmer: That was Kate Howitt, portfolio manager for the Fidelity Australian 329 00:18:08,570 --> 00:18:12,399 Sean Aylmer: Opportunities Fund. This is The Fear and Greed Daily Interview. Join me every 330 00:18:12,400 --> 00:18:14,640 Sean Aylmer: morning for the full Fear and Greed Podcast with all 331 00:18:14,640 --> 00:18:17,230 Sean Aylmer: the business news you need to know. I'm Sean Aylmer. 332 00:18:17,490 --> 00:18:17,869 Sean Aylmer: Enjoy your day.