Over the past year or so, NZSA has been quietly building a closer working relationship with our friends in Australia. We think that’s important – most of us have a more ‘regional’ outlook in our investment approach when investing in this corner of the world. Like others, though, I do wish that most Australians would return the favour by taking a greater interest in the (many) opportunities on the NZX.
It’s with that context that I made the trip to Melbourne (my first foreign travel since early 2020…I wonder why?) both to extend our ASA relationship and learn more about the prevailing investment mood and outlook of ASA members.
There was plenty in the conference to ‘take away’. The topics were all focused on providing clear insight to investors based on the current state of global investment markets and the massive changes to the geo-political and economic environment.
‘Future Proofing your investments’
The conference opened with a ‘welcome to country’ from a representative of the traditional aboriginal owners of the land that now comprises central Melbourne. This was followed by a brief address by ASA Chair, Steven Mabb. Similar to NZSA, Steven outlined a new strategy for ASA focused on membership growth and the provision of ‘content’ to support independent advocacy and education. The facilitator, Andrew Page from www.strawman.com, then took the stage.
Andrew focused on four current issues that supported the conference theme of “future-proofing your investments“. Those themes won’t be a surprise to anyone, and a constant refrain of the investment community on this side of the Tasman also:
- Covid-19 and its impacts
- War in Ukraine
- Rising inflation
- Rising interest rates
Of course, the risks to investment that result from these issues also provide opportunity, setting up many of the conference plenary sessions over the coming two days.
The Hon. Nicola Roxon, a former Australian Attorney-General and now Chair of HESTA (a large superannuation fund) took the stage to discuss the role that superannuation funds play on the ASX. She noted that collectively, superannuation funds manage over AU$3.5 trillion in assets – more than the market capitalisation of the ASX – and own around 37% of ASX-listed companies.
She also highlighted a number of investment trends and challenges that were impacting investment decision-making, including the increasing roles of both regulation and/or compliance and ‘sectoral’ screening based on environmental or social factors such as climate change or diversity attitudes. A later presenter, Sir Ronald Cohen, talked about the rising influence of ‘impact investment’ in investor decision-making, with investment decisions taken according to investor beliefs on social practices. Both speakers highlighted the role of effective measurement standards in ensuring that clear and consistent information is presented to investors.
The first ‘sector-focused’ session was around Technology investing, from Diane Smith-Gander, Chair of Zip Co (ASX: ZIP) and a recent independent director of AGL (she resigned shortly after this conference, based on successful shareholder activism opposing the split of AGL into two entities). She noted that a focus on profitability and cash was key for the sector in the near future, and felt there was further consolidation likely in what is still a crowded ‘payments’ sector. She also noted that companies like Zip offer some element of inflation hedging, as their revenue is generated on a percentage of sales – so as sale prices rise, so does their revenue.
The technology theme continued with a later presentation by Bailador Tech (ASX: BTI) Chair, David Kirk (also the Chair of NZX-listed KMD Brands). More on that below.
A panel session on the Healthcare sector followed, featuring the CEOs of Australian Clinical Labs (ASX: ACL) and Alcidion (ASX: ALC). They noted the role of disruption on their industry, in particular the move to ‘virtual healthcare’ provision catalysed by Covid, as well as the positive impact of technology and automation in scaling healthcare services and improving efficiency. Like many other companies, they highlighted the current labour shortage afflicting the industry.
The CEO of Tesserent (ASX: TNT), Kurt Hansen then talked about the impact of cyber-security on organisations and governments, noting that “Australia has under-invested in cyber-security in the past“. How times have changed – he quoted recent research that most Australian CEOs now see cyber-security breaches as their biggest risk, with commensurate growth in IT budgets.
Interestingly, he talked about Tesserent as an “Australian-based sovereign business focused on Australia“. Given the current state of world geo-politics, I can well understand that as an advantage – albeit one that will ultimately limit the company’s ambitions. The company does have a small business in New Zealand, but the somewhat dismissive attitude towards NZ encapsulated in Kurt Hansen’s tone and language as well as the somewhat incongruous conflation of New Zealand as part of an ‘Australian sovereign business’ left me wondering if Australian CEO’s have learnt their lesson from the past when it comes to respecting local markets and communities.
Similar to past NZSA conferences, a variety of exhibitors from investment services organisations were set up in one of the conference rooms. Most also had a speaking slot at the conference – while clearly aimed at highlighting their services, they also highlighted key thematics or ‘megatrends’ that were applicable to current investment approaches and could influence thematic-based portfolio selection:
- Technology – its role in improving efficiency and automation
- Climate Change and de-carbonisation – and its impact on energy and materials industries
- Demographics – ageing populations, wealth distribution and emerging markets
- Healthcare – Global improvement and subject to further transformation / disruption
- “Structural” inflation – exacerbated by government Covid policies to inject monetary support directly to consumers.
- Supply chain shortage – the movement from “just in time” to “just in case”
Each provides opportunity and risk in the longer-term. Most presenters agreed that the next decade would be harder in terms of investor returns – understanding the impact of these trends will help protect future returns.
There was one panel session, featuring conference exhibitors, on cryptocurrency. While potentially insightful, the panellists came across more as preachers at a Pentecostal church than being able to offer great insight for investors. Unfortunate indeed – as a show of hands demonstrated, there was little knowledge or investment experience in cryptocurrency in the room, and it would be difficult to imagine that changing after the ‘sermon on crypto’ had been delivered.
The messages around the impact of decarbonisation were supported by a presentation featuring the CEO of Calix, Tim Hodgson and Tim Buckley, from Climate Energy Finance. Calix has created a new processing technology that allows carbon released during cement manufacture to be captured and sequestered. It’s estimated that cement manufacture comprises around 8% of global carbon emissions. He noted that the iron and steel manufacturing industries are around another 8%. That highlights an actual impact of decarbonisation far beyond the mindset of most consumers.
With those megatrends are identified, what can we do about them? Invest accordingly, of course! TAMIM Asset Management offered insight that investors should “look for companies that have great revenue control, are focused on cash, have some headroom on their balance sheets and maintain a degree of pricing power or control in their market.”
David Kirk’s presentation, representing Bailador Technology, highlighted a few investment choice fundamentals that continue to endure, regardless of economic climate or perhaps even sector.
- Operate in big, growing and enduring markets
- Provide enduring solutions to ongoing problems
- have a competitive advantage
- have great management teams
- are supported by strong environmental ‘tailwinds’
Sage advice indeed. Perhaps a risk overlay should be that investors need to be aware of when those tailwinds that help to underpin investment fundamentals suddenly disappear. We’re witnessing that now, of course, with the end of cheap debt as interest rates rise, a fundamental ‘reset’ in the power of central banks and a geo-political world that is looking more like 1960 than the benign 2000’s.
The Chair’s Forum
Like NZSA, the ASA benefits from strong relationships with many senior business leaders. The conference closing session was a panel session featuring Paul O’Sullivan (Chair, ANZ), Elizabeth Proust (Director, Lendlease) and John Bevan (Chair, Bluescope Steel). The session focused heavily on the personal; backgrounds of each Chair, but their quotes below perhaps offer a snapshot into both the opportunity and challenge facing Australian business…
Next Steps – Education
Like NZSA, the ASA is in a state of change in terms of how it supports investor education. Some themes were touched on by multiple presenters at the conference – they highlighted the same aspects that are dear to NZSA’s heart;
- Be clear on investment goals
- Determine the investment timeframe – and invest accordingly
- Invest in a low-cost way (ie, fees matter!)
- Diversify to minimise risk
Multiple presenters talked about a ‘core’ portfolio supported by ‘satellite’ thematic-based investment, a simple message that offers value to all levels of investors. Some highlighted the role that ETF’s (exchange traded funds) can play, both in maintaining portfolio diversification, but also as an ‘active’ choice in their own right, allowing investors to actively choose the level of investment in different ETFs to support their own goals and/or levels of exposure.
The education message is different for different investors, depending on their level of experience and confidence. Both organisations have plenty to do to in supporting this in future.
NZSA 2023 Investor Conference
We’re all looking forward to this. Given the impacts on the last 3 conferences, even just having a physical Investor Conference in New Zealand will represent a great leap forward! One thing I did reflect on following the ASA Conference experience was that the topic-based nature of the discussion that we looked to support at our own conference earlier this year was similar in nature to what was on offer at the ASA event.
But I also have no doubt that the event we will run in Auckland on February 18th 2023 will be all the better for what we have observed in Melbourne.