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Speaker 2: I wouldn't say it's panicky yet, but we're moving towards that.
Speaker 2: The market's reacting in a very real time way. This
Speaker 2: is the best time to find no stocks that have
Speaker 2: been indiscriminately sold off. I suppose the biggest call we
Speaker 2: had to make was the rules of the game changing,
Speaker 2: and the framework of investing is actually changing.
Speaker 3: Hello and welcome to shared Lunch, brought to by Chairs's
Speaker 3: at Cheesea's. We're on a mission to create financial empowerment
Speaker 3: for everyone, and that's why these conversations are so important.
Speaker 3: It's a chance to really dig into what's going on
Speaker 3: in the world of investing and share that with everyone.
Speaker 3: Today I'm joined by Michelle Lopez of Australasian Equities and
Speaker 3: portfolio manager at five Funds, and we're going to talk
Speaker 3: about what's going on in the markets.
Speaker 2: At the moment.
Speaker 4: Investing involves the risk you might lose the money you
Speaker 4: start with. We recommend talking to a licensed financial advisor.
Speaker 4: We also recommend reading product disclosure documents before deciding to invest.
Speaker 4: Everything you're about to see and here is current at
Speaker 4: the time of recording.
Speaker 3: Before we get started, I'd like to acknowledge the Gettigal
Speaker 3: people of the or nation, the traditional custodians of the
Speaker 3: land we were coming to from today, and pay respects
Speaker 3: to elders, past, present and emerging. Hi. Michelle, thanks Heats
Speaker 3: for joining us today.
Speaker 2: Heie, thanks for having me.
Speaker 3: There's obviously a lot going on at the moment, but
Speaker 3: thought we'd just jumped straight in and say is now
Speaker 3: a good time to invest?
Speaker 2: Look, it's interesting, it's an interesting time to invest, and
Speaker 2: it's probably the most unpredictable market that I've worked in,
Speaker 2: and I've seen quite a few corrections having been in
Speaker 2: the role for a couple of decas now. So the
Speaker 2: one thing I'd say is we're all feeling pretty battered
Speaker 2: and bruised to be honest at the moment, just given
Speaker 2: the volatility that we're seeing, but by no means in
Speaker 2: kind of chronic pain as such. And it's been tried
Speaker 2: and tested and proven over multiple cycles and timeframes that
Speaker 2: indeed these are the times that prove to spin off
Speaker 2: the best opportunities, particularly if you are taking a bit
Speaker 2: of a longer term view, so the next six months,
Speaker 2: who knows, particularly under the US administration that we're seeing
Speaker 2: at the moment, with all the policy changes that are
Speaker 2: coming through. So I think you do need to sort
Speaker 2: of sit back a little bit and keep calm in
Speaker 2: these type of markets and really sort of think through
Speaker 2: when the dust settles, these are the times that opportunities
Speaker 2: present themselves and money is to be made. So I
Speaker 2: think it is an interesting time. I'm not calling sort
Speaker 2: of the bottom at this point, but yeah, I think
Speaker 2: volatility is definitely our friend, particularly the way that we
Speaker 2: look at the market.
Speaker 3: And so how how are the tariff's affecting sentiment and
Speaker 3: do you think there's any curveballs for us to watch
Speaker 3: out for? You mentioned like you wouldn't call the bottom
Speaker 3: now that, like, yeah, can you tell us a bit
Speaker 3: about that.
Speaker 2: I think there's multiple parts to this. The very direct
Speaker 2: impact to Australia New Zealand is actually quite minimal from
Speaker 2: a relative perspective. So I think about if you think
Speaker 2: about tariffs, and for Australia, the biggest, our biggest export
Speaker 2: to the US is beef, and for context, that's about
Speaker 2: a billion dollars that we export. You compare that to
Speaker 2: iron all to China mostly being eighty five billion, So
Speaker 2: again we're relatively immune from that perspective. But you have
Speaker 2: to think about second order effects. And you mentioned sentiment,
Speaker 2: and it absolutely hits sentiment because everything you're reading, everything
Speaker 2: you're listening to, is talking about this marketing flux, trade wars,
Speaker 2: and it really does hit sentiment. We also have to
Speaker 2: think about sort of second order effects. And you know,
Speaker 2: I mentioned iron ore as a very big export for US,
Speaker 2: but behind that is LNG, so liquefied natural gas, and
Speaker 2: again that goes into our region, being Asia, but it
Speaker 2: is pegged to oil prices, so the spot the pricing
Speaker 2: of those contracts, which are long term contracts. So there
Speaker 2: are implications around what's happening more broadly to the economy here.
Speaker 2: But having said that, it also spins off opportunities because
Speaker 2: guess what, there's going to be a lot of China
Speaker 2: product hitting our market and it could actually be deflationary
Speaker 2: for the Australian consumer, which is a good thing.
Speaker 3: How would you describe the vibe of the A six
Speaker 3: right now?
Speaker 2: Oh, it's i wouldn't say it's panicky yet, but we're
Speaker 2: moving towards that. And every day you sort of wake
Speaker 2: up and you don't know what to expect because headlines
Speaker 2: or tweets or whatever it is, there's something new, and
Speaker 2: the market's reacting in a very real time way, and
Speaker 2: you've seen it through intra day moves being huge. So
Speaker 2: I think everyone is quite nervous. Everyone is almost skittish
Speaker 2: in a way. So that's why, actually the most difficult
Speaker 2: thing to do and the hardest decision is to just
Speaker 2: remain calm until we have a sort of a clearer
Speaker 2: line of sight of where we're heading. And you know,
Speaker 2: I think tariffs have been really well broadly broadcasted. Obviously
Speaker 2: the extent of them haven't something that's been spoken about
Speaker 2: now for months.
Speaker 3: Yeah, you're right, Like we've seen, you know, we track
Speaker 3: and Vista sentiment through the quarters and over the last
Speaker 3: few months, like since the tariffs have been being talked about,
Speaker 3: we have noticed and Vista sentiment kind of dropping into
Speaker 3: what's called like cautious territory for us. But you know,
Speaker 3: people are still buying and knit buyers across the platform,
Speaker 3: so for you, you know, are you playing it safe
Speaker 3: or are you Are you seeing those opportunities?
Speaker 2: Look, I think a bit of both. So we are
Speaker 2: certainly seeing opportunities. But you know, one of the things
Speaker 2: that you've got to be really aware of is, you know, yes,
Speaker 2: absolutely picking the right companies, which is our bread and
Speaker 2: butter really from the bottom up, and understanding the companies
Speaker 2: that we're investing in. In fact, the biggest downside risk,
Speaker 2: I always say, is not knowing what you're buying. Having
Speaker 2: said that, though, portfolio construction is equally important, and it's
Speaker 2: really important in this type of market that you've got
Speaker 2: a diversity of companies with very different earnings drivers, not
Speaker 2: so much sectors because sectors can be quite misleading. And
Speaker 2: why that's important is we don't know what pathway the
Speaker 2: economy will take from here, predominantly the US economy, given
Speaker 2: it's the largest, and it absolutely moves markets because that
Speaker 2: pathway is unclear. You need to have your defensive stocks,
Speaker 2: you need to have your cyclical stocks, and then you've
Speaker 2: got your growth your compounders, and they're going to each
Speaker 2: be affected in different ways. So ensuring that is in
Speaker 2: play and you're not leveraging only one scenario and going
Speaker 2: hard into that I think that's prudent. So I suppose
Speaker 2: if you want to say that's conservative. Having said that, though,
Speaker 2: this is the best time to find stocks that have
Speaker 2: been indiscriminately sold off. You know, we've got companies that
Speaker 2: are off thirty percent, forty percent, super high quality businesses
Speaker 2: with actually quite resilient earnings regardless of tariffs, that that
Speaker 2: have come off just with market sentiment. And that's your
Speaker 2: opportunity right there.
Speaker 3: And we've seen, you know, people are sing, you know,
Speaker 3: their portfolios going down at the moment, and we're hearing
Speaker 3: you know that that can be kind of hard to see.
Speaker 3: You know, we're all human, and you know, it's hard
Speaker 3: to kind of react to that. But anything about what
Speaker 3: Invista should be doing at a time like this.
Speaker 2: Look, I think it's a market cycle, you know, and yes,
Speaker 2: the rules of the game are changing somewhat and that's
Speaker 2: what's driving this volatility. But we will come through. We
Speaker 2: will come through this. So I suppose the one thing
Speaker 2: I would say is have a time frame in mind,
Speaker 2: and if you can't stomach losses, you know, over the
Speaker 2: next six months. You know, I'm not sure why you've
Speaker 2: been invested in the equity market, but if you've got
Speaker 2: a longer time horizon, if you've got that five year
Speaker 2: plus time horizon. Again, I always encourage people to zoom
Speaker 2: out because even in this really volatile period, if you
Speaker 2: zoom out, it almost looks like a blip. You know,
Speaker 2: we've been on a trajectory like this over the last
Speaker 2: five years, and it's a small blip. And I'm not
Speaker 2: trying to say that you've got to go all in now,
Speaker 2: That's not what I'm saying at all. I think there
Speaker 2: are some very clear risks, and as I said, the
Speaker 2: rules of the game are changing and the framework of
Speaker 2: investing is actually changing. But yeah, I think just be
Speaker 2: aware that you know, this has been three months, and
Speaker 2: you really do need when you're investing in stocks, you
Speaker 2: really do need to take a lo longer time horizon.
Speaker 3: And you mentioned you know, you've been in this industry
Speaker 3: for years now, and you would have seen, like it's
Speaker 3: very normal that markets go up and down and respond
Speaker 3: to two changes that are happening in the wider environment.
Speaker 3: Is there anything you're observing this time or about this
Speaker 3: change versus other times we've gone through this type of
Speaker 3: volatility before.
Speaker 2: Look, I think this one has been particularly interesting in
Speaker 2: that it's a bit self inflicted. So if I the
Speaker 2: most recent one being COVID, that was completely out of
Speaker 2: anyone's control and we had no idea sort of the
Speaker 2: extremity of the impact that was going to have, and
Speaker 2: then the one before that was probably the major one,
Speaker 2: being the GFC. Having lived through that as well, there
Speaker 2: was financial system collapse almost whereas this time round it
Speaker 2: feels like it's a little bit more man made and
Speaker 2: there could be a very clear off rap for what's
Speaker 2: playing out at the moment. And that's the difference. That
Speaker 2: there is a clear off ramp, we actually don't think
Speaker 2: that it will be taken, which makes it a little
Speaker 2: bit trickier, But yeah, that would be the difference, I
Speaker 2: would say. And the other side of it is there
Speaker 2: is quite a bit of firepower left fiscally stimulus wise
Speaker 2: that could be injected into our market if the need
Speaker 2: is there, both in Australia and New Zealand. I mean
Speaker 2: New Zealand just cut rates today as well. That they've
Speaker 2: been on that trajectory for a little while now, so
Speaker 2: there's definitely firepower that governments can sort of come out
Speaker 2: with to underpin the consumer.
Speaker 3: And how that and the funds that you're managing, how
Speaker 3: are those tracking.
Speaker 2: I'm responsible for the Australasian equity component of PIE, but
Speaker 2: PIE does offer a whole range of products, different asset
Speaker 2: classes and balance portfolios as well. Obviously the balanced portfolios
Speaker 2: have done much better than the pure equity portfolios. So
Speaker 2: the new term has been challenging. If you look over
Speaker 2: a longer time horizon two years, five years since inception,
Speaker 2: our funds have performed, have performed well. They've outperformed their
Speaker 2: peers and their benchmarks over a longer time horizon. But yeah,
Speaker 2: the last three months have been have been quite tough
Speaker 2: in line with markets.
Speaker 3: And have you had to make any tough calls through
Speaker 3: that time?
Speaker 2: I think I get to the weekend and I'm so
Speaker 2: fatigued by decision making. Just I told my family, just
Speaker 2: make decisions that you want about dinner on your own,
Speaker 2: do not involve me, Because our day to day is
Speaker 2: all about decision making and making calls on the spot
Speaker 2: with the amount of information that we've got to hand,
Speaker 2: and when that information is constantly changing, it's very difficult.
Speaker 2: So I suppose biggest call we had to make was,
Speaker 2: you know, maybe back to your question around defensiveness. We
Speaker 2: run portfolios and we've got target cash rangers, and we
Speaker 2: brought our portfolio into up to the highest sort of
Speaker 2: level of cash that we could own towards the end
Speaker 2: of you know, beginning of March, over over the March period,
Speaker 2: and that was quite tricky because the market had already
Speaker 2: fallen you know, five six seven percent, and at that
Speaker 2: point we were kind of unsure. We hadn't had the
Speaker 2: big sort of day liberation day out of the US,
Speaker 2: and we chose to lift our cash levels quite to
Speaker 2: the max limit. And that felt a little bit risk
Speaker 2: at the time because we would have not kind of
Speaker 2: kept up if the market was to rally. But it's
Speaker 2: also positioned us really well now because we're sitting on
Speaker 2: this dry powder with a lo dramatic cash that we
Speaker 2: can start investing slowly into those companies, those opportunities which
Speaker 2: you know are popping up now. So I don't know
Speaker 2: if that answers your question around a hard a hard decision,
Speaker 2: but we've got to make calls every day around that
Speaker 2: and positioning because you know, it's very difficult to predict
Speaker 2: at this point in time given all the changes. So
Speaker 2: it's all it's more about being prepared, so prepared for
Speaker 2: those different scenarios playing out and ensuring that portfolios are
Speaker 2: positioned for that.
Speaker 3: Any're observing any changes to where money is flowing. With
Speaker 3: a result of what's going on at the moment, like
Speaker 3: often and volatile times, people might turn to gold like
Speaker 3: is that still the case or like what are you
Speaker 3: noticing there?
Speaker 2: Yeah? Absolutely, I mean gold was the best performing asset
Speaker 2: or sect or asset class or whatever you want, whatever
Speaker 2: it's categorized as in March, god was up thirteen percent.
Speaker 2: The rest of the market was down, you know, five percent,
Speaker 2: call it thereabouts. So it's definitely held its status as
Speaker 2: a safe a safe haven, you know, I think a
Speaker 2: bit more longer, longer dated. Though, There's been lots of
Speaker 2: different asset classes that have really attracted a lot of
Speaker 2: asset flow. And you know, private debt is one of those.
Speaker 2: You know, cryptocurrency is another one that's gotten a lot
Speaker 2: of attention and starting to see and started to say
Speaker 2: over you know, the last twelve eighteen months, institutional buying
Speaker 2: as well, not just retail. So yeah, there's there's been
Speaker 2: a number, but I'd say defensives at the moment gold cash,
Speaker 2: that's you've certainly seen shift shifting to that, but that's
Speaker 2: that's kind of normal. I think there's nothing that's screaming
Speaker 2: people are panicking in any way. It's just upheld its
Speaker 2: status as gold. And you know, it's a big one
Speaker 2: for for the Australia market in particular because the benchmarks
Speaker 2: that we're running our funds too, which is mostly the
Speaker 2: small ordinaries, twelve percent of that benchmarker goal producers. So
Speaker 2: it's a big part of our market and it's it's held,
Speaker 2: it's held itself.
Speaker 3: How about any other rare earth minerals.
Speaker 2: Well, rarest is interesting, right because China's just come out
Speaker 2: and banned all exports to the US. Why that's a
Speaker 2: big deal is they represent something like seventy percent of
Speaker 2: the rare earth's market and rareer actually are strategically important
Speaker 2: because they go into the manufacture of a lot of
Speaker 2: these core you know, high tech products as well as
Speaker 2: renewables and even defense. So it's it's actually a really
Speaker 2: important factor. And there's a couple there's actually a couple
Speaker 2: of ASX listed companies that are probably now looking a
Speaker 2: bit more attractive, and Linus is one of one of
Speaker 2: those companies. We don't own Linus in the portfolios, but
Speaker 2: they're mount world asset in w A. They're one of
Speaker 2: the world's highest quality as rare Earth's mine outside of
Speaker 2: China and one of the largest at scale. So I
Speaker 2: think there's that will probably be a beneficiary of what's
Speaker 2: happening from a China closing their export market to the US.
Speaker 2: And then you've got a lot of more speculative names
Speaker 2: in our market as well. You've got a Referra Northern
Speaker 2: Minerals I think is one of them as well Linden Resources.
Speaker 2: So there's a couple of real specky names in there,
Speaker 2: but probably not part of the market that we're playing in.
Speaker 2: We take the steardship of our client's capital very seriously,
Speaker 2: so again we've got to understand sort of the risk
Speaker 2: and for me, that part of the markets is quite speculative,
Speaker 2: so we tend to avoid it.
Speaker 3: And how about as we love to areas of growth
Speaker 3: or innovation, like, is there anything that you're noticing popping
Speaker 3: up there?
Speaker 2: Oh, look, there's the usual stuff that you can hear
Speaker 2: about every day around AI or healthcare and gene therapies.
Speaker 2: But you know, yesterday actually I came across a really
Speaker 2: interesting article and it was an industry piece around decommissioning
Speaker 2: of a number of these oil and gas wells in
Speaker 2: the basin for Australia and the Western Australian Basin, and
Speaker 2: you wouldn't believe it. I didn't believe it anyway. There's
Speaker 2: about sixty three billion dollars worth of work to be
Speaker 2: executed decommissioning these wells. There's a thousand wells that need
Speaker 2: to be decommissioned over the next thirty years starting now.
Speaker 2: That has to be done in a safe and environmentally
Speaker 2: friendly way. And Australia has taken a lot of learnings
Speaker 2: of issues that have happened offshore, so they've put a
Speaker 2: lot of emphasis on doing this in an effective and
Speaker 2: safe way. So I actually think this is going to
Speaker 2: be a really interesting space. It's nascent at the moment.
Speaker 2: No one's talking about it. So for me and again
Speaker 2: just trying to understand who are the players in this market.
Speaker 3: The space being the decommissioning or that the decommissioning.
Speaker 2: So think about everything from going out to these offshore rigs.
Speaker 2: The worlds have been plugged out, plugged up, sorry, so
Speaker 2: they're no longer flowing from a gas or oil perspective,
Speaker 2: and how do you remove that infrastructure in a way
Speaker 2: and get rid of it. So we've got you know,
Speaker 2: recycling companies clean Away as an example, that are playing
Speaker 2: in a very small part of that market, but given
Speaker 2: the sheer amount of work coming through. So yeah, that's
Speaker 2: that's kind of a growth industry that I think there
Speaker 2: should be some key beneficiaries of that. So when I
Speaker 2: come across something like that, I look for, Okay, so
Speaker 2: are there any barriers to entry, any licensing requirements that
Speaker 2: are required, what companies hold those licenses? And then the
Speaker 2: skilled labor you know, this is very highly skilled who
Speaker 2: has that sort of labor pool that can execute on
Speaker 2: these type of contracts. So that's an area that just
Speaker 2: caught my interest. So I was like, well, that's something
Speaker 2: I haven't even heard about, So I'll probably be delving
Speaker 2: to that in a bit more detail and see who
Speaker 2: the natural players are.
Speaker 3: Yeah, it's fascinating because you kind of think of like
Speaker 3: growth and innovation being producing something new, oras this is like,
Speaker 3: this is the almost the opposite. It's like, how too,
Speaker 3: It's at.
Speaker 2: The other end of something, but it's and that's the thing.
Speaker 3: It's so important and obviously huge health and safety impact.
Speaker 2: Absolutely, And you're spot on. Innovation isn't just new, it's
Speaker 2: also you know, a whole topic around innovation. But you
Speaker 2: know these microphones as an example, the amount that probably
Speaker 2: innovation that needs to go into that. And who's got
Speaker 2: the ip who's got the patent around whatever? Property is
Speaker 2: like it's it's it's everywhere, and if you're not, if
Speaker 2: you're not thinking about it, then you'll be left behind.
Speaker 3: And how about any exciting new companies? Are there any
Speaker 3: standouts in particular?
Speaker 2: We've had very little new companies come to market unfortunately,
Speaker 2: so there's no new kind of IPOs as such. We
Speaker 2: had a few at the end of last year.
Speaker 3: Why is that?
Speaker 2: So we had similar coscale? There was a couple the problem.
Speaker 2: The problem with IPOs is you need pretty buoyant market
Speaker 2: conditions for them to be successful, and then investors also
Speaker 2: want to see success post IPO, and unfortunately that hasn't
Speaker 2: played out for the ones that came broadly came to
Speaker 2: market last year. There's a couple of things there. You know, liquidity,
Speaker 2: particularly in the sort of small end of the market
Speaker 2: is really important. And when you're going down kind of
Speaker 2: the market cap range and sort of the risk increases,
Speaker 2: you want to make sure that new capital being allocated
Speaker 2: there's a risk reward trade off there, so that hasn't
Speaker 2: played out. Now we've got heightened market uncertainty. No company
Speaker 2: wants to come an I p O when there is investor.
Speaker 2: You need investor appetite to step in right and not
Speaker 2: just IPO but sustain a post post listing. And then
Speaker 2: maybe venture capital are still quite willing to provide to
Speaker 2: provide capital into into the businesses. So I think that's
Speaker 2: it's kind of a combination of all but there are
Speaker 2: two that have been sort of flagged meaningful ones being
Speaker 2: Virgin looks like that. I'm not sure if it's still
Speaker 2: coming to market after what's playing out, but that certainly
Speaker 2: has been flagged. And then close to home as well,
Speaker 2: New Zealand Fonterra are looking to it's a dual track
Speaker 2: process of a trade sale but also IPO the consumer
Speaker 2: part of the business as well. So they're probably the
Speaker 2: two main ones that I know of in the pipeline.
Speaker 2: But it has dried up and that's that's not a
Speaker 2: good reflection, I suppose, because you want a real vibrant
Speaker 2: market and IPOs are typically important because it attracts new capital,
Speaker 2: and we given our specialty and our niche in small
Speaker 2: in small caps, it's been a big part of how
Speaker 2: we've invested in the past.
Speaker 3: And so I guess we'll just kind of start to
Speaker 3: wrap up now. But wondering if there's any any message
Speaker 3: you've got to investors at the moment and how to
Speaker 3: kind of move through these times.
Speaker 2: Look, I think there's a famous quote that's probably been
Speaker 2: rewritten a number of times and different people adding their
Speaker 2: own little way spin to it. But you know, I
Speaker 2: always think back to investing as a business is actually
Speaker 2: the only business that when it goes on sale, which
Speaker 2: is kind of what we're seeing now, that people run
Speaker 2: for the doors. And again coming back to time frames
Speaker 2: and coming back to understanding what downside risk is, and
Speaker 2: downside risk is not knowing what you're buying if you
Speaker 2: do the analysis and you understand what the risk of
Speaker 2: those earnings are. I think these are the times that
Speaker 2: the opportunities present themselves. And sure it takes courage, but
Speaker 2: it's been proven time and time again. So take advantage
Speaker 2: of the sale. I suppose if you've got that time horizon, Yeah.
Speaker 3: Hey, thanks so much. Michelle, I really appreciate our chat today.
Speaker 3: It's pleasure, it good to be here, and thanks everyone
Speaker 3: for tuning in. You can watch Shared Lunch on YouTube
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