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How wealthy investors are dealing with the Iran crisis · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
0:14
Speaker 1: James Kirby. Welcome aboard, everybody. I was entertained by the
0:18
Speaker 1: lead headline in a daily financial newspaper which shall remain nameless,
0:23
Speaker 1: but it's said this week investors bamboozled by peace talks. Now,
0:29
Speaker 1: it's not a great headline, but you know it's true.
0:31
Speaker 1: No one knows what's going on as far as we
0:34
Speaker 1: know as investors. All we know for sure really in
0:36
Speaker 1: relation to the Iran crisis is that there's been an
0:40
Speaker 1: oord shock and a consequent inflation shock. So we've got
0:44
Speaker 1: to talk about how are you dealing with And my
0:46
Speaker 1: guest today is a top advisor. He's one of the
0:50
Speaker 1: few advisors that's been at the upper end of the
0:52
Speaker 1: Baron's Top one fifty days since it was started. And
0:55
Speaker 1: it says, I'm just looking at he's entering the magazine
0:58
Speaker 1: you need five million actually to deal with and that's
1:00
Speaker 1: not uncommon by the way, at the upper reaches of
1:03
Speaker 1: the list. I mentioned this because it goes to the
1:05
Speaker 1: heart of what I want to talk to him about,
1:08
Speaker 1: which is how wealthy investors are dealing with this crisis.
1:12
Speaker 1: So far In what way is it different since COVID,
1:15
Speaker 1: for instance, It's Ben James is the managing director and
1:19
Speaker 1: partner and advisor at a Scala A partner. How are you, Ben,
1:23
Speaker 1: I'm very well.
1:24
Speaker 2: Thank you, James, thank you for having me on the
1:26
Speaker 2: pod today. It's a pleasure to be here.
1:28
Speaker 1: It's very nice to have you on. And as I mentioned,
1:30
Speaker 1: we've tack tacked over the years. I think you're I
1:32
Speaker 1: think you're one of a handful I must count based facically,
1:35
Speaker 1: but there's only a handful of that one fifty that
1:37
Speaker 1: have been on the list since it's launched once upon
1:40
Speaker 1: a time around to sixteen thereabouts. Okay, now here's the thing.
1:45
Speaker 1: As I say, oh, we really know, I mean, anyone
1:47
Speaker 1: else is kidding themselves if they say they know any
1:50
Speaker 1: more than what we've got in front of us, which
1:52
Speaker 1: is an inflation shock, an energy shock, specifically a supply
1:56
Speaker 1: shock on energy. One of the things we were talking
1:58
Speaker 1: about before the show was how it's different you feel,
2:01
Speaker 1: at least in your experience with your cohort of investors,
2:06
Speaker 1: your clients, but not just your clients, how much in
2:08
Speaker 1: your entire circular it's different. Right, So people are reacting differently,
2:13
Speaker 1: and maybe in the show we'd explore how our listeners
2:17
Speaker 1: could move differently from here, But in what we are
2:20
Speaker 1: people reacting differently to this crisis.
2:24
Speaker 2: It's a really good question, James, because I think investors
2:26
Speaker 2: have been you know, you rightly say so, challenged with
2:30
Speaker 2: so many different things over the last fifteen or twenty years.
2:33
Speaker 2: And you know, if I pull back a bit to
2:36
Speaker 2: the different types of crisises we've had in recent years,
2:40
Speaker 2: you know, we break them down to probably three major
2:43
Speaker 2: crisises being geopolitical and arguably we're in that now. We've
2:47
Speaker 2: also had financial crisis, economic crisis, and what our data
2:52
Speaker 2: shows is that crises that are deeper, you know, more
2:57
Speaker 2: damaging to financial markets of the financial crime. And if
3:00
Speaker 2: you look back to the GFC, I think even a
3:03
Speaker 2: balanced portfolio during that time probably fell twenty twenty five percent.
3:09
Speaker 2: If you look at an economic crisis, you know, we
3:11
Speaker 2: look backwards to things that have happened in the past.
3:14
Speaker 2: I think we could all agree COVID was an economic crisis,
3:17
Speaker 2: and a balanced portfolio then probably fell about twenty odd
3:21
Speaker 2: percent as well. If we drilled down the geopolitical in crisises,
3:26
Speaker 2: and you know, we're certainly in one of them. Now
3:29
Speaker 2: take ourselves probably back to Ukraine and Russia in feb
3:33
Speaker 2: Of twenty twenty two. You know, balanced portfolios only fell
3:37
Speaker 2: about two or three percent during that time. If you
3:40
Speaker 2: go further back even two thousand and three Iraq War,
3:44
Speaker 2: the invasion during March and May, portfolios are actually up.
3:48
Speaker 2: So you know, in many ways for US crisises like
3:52
Speaker 2: these tend to be less damaging to financial markets. And
3:57
Speaker 2: if you look at what's happening in indices the moment,
4:01
Speaker 2: it's almost surprising in some ways that the depth of
4:04
Speaker 2: retricement we're saying hasn't been that great.
4:07
Speaker 1: Yeah, you're actually echoing a number of people, including the
4:10
Speaker 1: head of Goldman Sachs there who said but he said
4:13
Speaker 1: he was surprised at the complacency of Marcus having said that.
4:17
Speaker 1: There's a couple of issues obviously that are of concern.
4:20
Speaker 1: I mean, our market at the ASX is down six
4:23
Speaker 1: or seven percent so far this year. That's very far
4:25
Speaker 1: away from where we hope we'd be. The US is
4:28
Speaker 1: down this year a few percent, and I suppose crucially
4:33
Speaker 1: the interest rate environment is going in an unexpected change direction.
4:39
Speaker 1: So by that I mean bonds which were supposed to
4:41
Speaker 1: be the great defender. We're seeing totally turns from bonds dropping.
4:45
Speaker 1: If I've got that wrong, tell me, but total bonds
4:48
Speaker 1: are dropping. So I understand what you're saying that there's
4:51
Speaker 1: nothing scarier than a financial crisis in my life. I
4:54
Speaker 1: don't think there was anything, And I can go back
4:56
Speaker 1: to the nineteen eighty seven crash and whatever it was
4:58
Speaker 1: anything as scary as fearsome as a genuine financial banking
5:05
Speaker 1: crisis where you wonder is the whole system actually going
5:08
Speaker 1: to stay as we know it? So okay, that's not
5:11
Speaker 1: an issue just now. But in the nature of this
5:13
Speaker 1: crisis then, and the resettings that are demanded perhaps of investors,
5:18
Speaker 1: tell us a little bit more about that in terms
5:20
Speaker 1: of what people should be doing. And I know you
5:25
Speaker 1: can explain briefly if you would, what you've told investors
5:27
Speaker 1: to do in the past, but we don't have you
5:29
Speaker 1: as an advisor, So if you could tell the listeners
5:32
Speaker 1: ideally what you think are the most important things going forward?
5:35
Speaker 2: Yeah, yeah, Look, if we reflect back on those past
5:38
Speaker 2: crisises and how investors are behaving now, I think what's
5:42
Speaker 2: important has actually changes investor behavior, and probably that's coming
5:46
Speaker 2: out through investor education. It's not because they're smarter or braver,
5:51
Speaker 2: I don't think. I do think it's because portfolio is
5:54
Speaker 2: a better diversified and more thoroughly constructed. And you know,
5:58
Speaker 2: I've got the privilege of dealing with wealthier investors that
6:01
Speaker 2: do have the ability to fully diversify into more diverse
6:05
Speaker 2: portfolios that do protect them in times such as that.
6:10
Speaker 2: So it's not really the investors that are handling the best.
6:13
Speaker 2: Ones that are handling it with stronger nerves. They've probably
6:16
Speaker 2: got better portfolios. And you know, we all as portfolio stewards,
6:21
Speaker 2: we all understand that volatility will always prevail for us.
6:27
Speaker 2: Risk is what we need to manage. Risk of bad decisions,
6:30
Speaker 2: risks of emotions taking over, and risk of following the crowd,
6:35
Speaker 2: or risk of doing something that isn't part of your
6:38
Speaker 2: five year plan. And in this cycle, I think it's
6:41
Speaker 2: particularly important, you know, to understand the divide in portfolios
6:46
Speaker 2: that are built for one regime or one market outcome. Yeah,
6:51
Speaker 2: if you look back to twenty twenty five, everyone was
6:54
Speaker 2: very excited about growth and portfolios were tilted that way.
6:59
Speaker 2: But certainly are parts in the portfolio that were probably boring.
7:02
Speaker 2: And you mentioned infrastrate markets other alternative asset classes that
7:06
Speaker 2: might have lagged the growthier parts of the market, but
7:09
Speaker 2: now they are actually performing okay. And you know, I
7:14
Speaker 2: will challenge you slightly on the interst rate piece. You know,
7:17
Speaker 2: where we park or have been parking our infrast rate
7:22
Speaker 2: exposures is in floating rate securities, short duration, very liquid
7:27
Speaker 2: you know T plus one style product issued by Aussie
7:31
Speaker 2: banks and corporates that is available to you, you know,
7:34
Speaker 2: for when you need to transition your portfolios into more
7:38
Speaker 2: risky asset classes. But it can't.
7:42
Speaker 1: It's great if you're in short term duration bonds right now,
7:46
Speaker 1: but you can't be in them forever. And if you're
7:48
Speaker 1: in them forever, it would take a lot of work
7:50
Speaker 1: for rest of all, it probably wouldn't be the best investment.
7:53
Speaker 1: Put it permanently.
7:54
Speaker 2: No, no, and certainly not suggesting all of the portfolio.
7:57
Speaker 2: I think some of our portfolios at the moment would
8:00
Speaker 2: be fifteen to twenty percent in that type of investment.
8:04
Speaker 2: And the way we manage risk for a new investor,
8:07
Speaker 2: for example, if they're starting with a brand new portfolio today,
8:12
Speaker 2: is probably start with one hundred percent in that floating
8:15
Speaker 2: rate product, and then as one gets more comfort or
8:19
Speaker 2: starts dollar cost averaging into other asset classes, you just
8:23
Speaker 2: sell down one and bind to the riskier asset.
8:26
Speaker 1: And what sort of ruling yield are you getting on that?
8:30
Speaker 2: The rolling yield on sort of a diversified thirty to
8:33
Speaker 2: thirty five name portfolio and fixed income five and a
8:37
Speaker 2: half to six at the moment.
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Speaker 1: Okay, so it is better than the best cash.
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Speaker 2: Yeah, and importantly for investors to understand, it's actually better
8:45
Speaker 2: than term deposits as well. And you know five ten
8:49
Speaker 2: years ago banks would avail liquidity in term deposits, but
8:52
Speaker 2: you just can't do that now. And so you know,
8:55
Speaker 2: tds are locked up for the duration of their maturity period,
9:00
Speaker 2: whereas you know, fixed income securities that we're referencing are
9:04
Speaker 2: very liquid. They're deeper than equity markets.
9:07
Speaker 1: Except to say, ben for the conservative investor, the cash
9:10
Speaker 1: is government guaranteed, which you can't provide.
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Speaker 2: There's absolutely no denying that, and that's correct. But you know,
9:17
Speaker 2: we feel risk adjusted, that's a risk worth taking, and
9:21
Speaker 2: it's only be really been in those financial crises whereby
9:25
Speaker 2: some of that has been questioned.
9:27
Speaker 1: Is there parts of the market that you feel it
9:31
Speaker 1: is now clear that people should never have been playing in.
9:36
Speaker 1: For instance, I'm thinking of crypto and the more speculative
9:39
Speaker 1: e ends of things it overplaced to AI stocks. I'm
9:41
Speaker 1: talking about the really obviously frauthy part of investing.
9:45
Speaker 2: Yeah, yeah, Look, I think it really comes down to
9:49
Speaker 2: education of the investor. You know, we haven't participated in crypto.
9:54
Speaker 2: We have participated in certain parts of AI, but I
9:58
Speaker 2: think the investors need to really understand what they're investing
10:01
Speaker 2: in and right size versus the risk that they feel
10:05
Speaker 2: they're taking. You know, I don't have any great issue
10:08
Speaker 2: with a portfolio having a three percent, three or five
10:12
Speaker 2: percent allocation the digital currency, nor do I have a
10:15
Speaker 2: problem having probably even larger exposure to some of that
10:19
Speaker 2: growthier part of the market in AI tech. But you know,
10:23
Speaker 2: you want a lot of names, a lot of diversification,
10:25
Speaker 2: and increasingly good liquidity.
10:28
Speaker 1: I want to talk to you, and we're going to
10:29
Speaker 1: talk to the next part about basically what to do
10:32
Speaker 1: now where we go we have portfolios, what we should
10:35
Speaker 1: be looking for. But here's the thing, just quickly on
10:38
Speaker 1: that one other things I'm throwing questions at random. That's
10:41
Speaker 1: the nature of the show. Thank you for being cooperative
10:44
Speaker 1: so far.
10:44
Speaker 2: It's all good gold. Gold.
10:47
Speaker 1: Where you stand? I start by saying, Morgan Stanley's chief
10:50
Speaker 1: investment officer a few months ago and people could have
10:52
Speaker 1: up to twenty percent in it? This is Morgan Stanley,
10:54
Speaker 1: the biggest worth advisor in the world. Where do you
10:56
Speaker 1: stand on it?
10:56
Speaker 2: I read that with great interest, so did I.
10:59
Speaker 1: But what did you conclude?
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Speaker 2: I think he's onto something m h. And we'll obviously
11:03
Speaker 2: explore this in the next part of the pod. But look,
11:06
Speaker 2: I think gold and other real assets as we call them,
11:10
Speaker 2: certainly have a part in portfolios. What's been interesting, I think,
11:14
Speaker 2: James over the last couple of weeks is how gold
11:18
Speaker 2: has behaved. One would expect during crisis is like this,
11:21
Speaker 2: gold returns as a place of safety, a safe haven
11:24
Speaker 2: for investors. But gold has actually rolled over. And I
11:28
Speaker 2: just think that's probably due to the aggressive run it's
11:33
Speaker 2: had in twenty twenty five. On a twelve month basis,
11:37
Speaker 2: it's been a great performing asset. I feel, you know,
11:40
Speaker 2: the beginning of town have probably been taking a little
11:43
Speaker 2: bit off the table in their gold exposures because they've
11:45
Speaker 2: made good money. But yeah, we're happy to still be
11:48
Speaker 2: allocating to gold at the moment. Absolutely interesting.
11:51
Speaker 1: Okay, take short break back in the moment, folks. Hello,
12:04
Speaker 1: welcome back to The Australian's Money Puzzle podcast. I'm James Kirby.
12:07
Speaker 1: I'm talking to Ben James of the Escala Partners Group,
12:11
Speaker 1: which is one of the more prominent of the boutique
12:15
Speaker 1: You might like the word boutique, I don't know, but
12:17
Speaker 1: Australian boutique style wealth managers, of which there are not many.
12:22
Speaker 1: There's really only a handful. If you look at that
12:24
Speaker 1: one point fifty advisors list, you have the big names,
12:26
Speaker 1: the global names, then you have a handful of local
12:29
Speaker 1: boutique groups, and then you have sort of spread of
12:31
Speaker 1: all sorts of shapes and sizes that might take. And
12:33
Speaker 1: I've been looking at I've actually been running the list
12:36
Speaker 1: for ten years. So it's an opinion, but it's an
12:40
Speaker 1: informed opinion. Okay, Now, Ben, let's talk about what people
12:44
Speaker 1: should be doing, because I mean everyone's listening. They know
12:48
Speaker 1: where they are. All their power is now what they
12:51
Speaker 1: can do. Next, Let's assume a few things. I want
12:54
Speaker 1: to put a few sort of lines on the ground.
12:55
Speaker 1: First of all, to see that we're all on the
12:57
Speaker 1: same page. Do you agree there's an inflation shop here?
13:00
Speaker 1: Do you agree that was unexpected? Do you agree that
13:02
Speaker 1: the structural inflation here that is not going to go
13:05
Speaker 1: back into the bottle anytime soon?
13:07
Speaker 2: Yes, to the first couple of questions, and regarding getting
13:12
Speaker 2: the toothpaste into the tube, about whether the central banks
13:15
Speaker 2: can do that, I'm not quite sure. I'll probably agree
13:18
Speaker 2: on that point as well. So I think what investors
13:21
Speaker 2: are grappling with now probably they didn't expect to be
13:25
Speaker 2: in this position a year ago.
13:27
Speaker 1: Yes, I mean they were still talking about cuts to
13:30
Speaker 1: US interest rates. Yeah, I mean until a few weeks ago.
13:33
Speaker 1: I mean I never believed it, have to say, but
13:35
Speaker 1: because the bond market said that was not true. But
13:38
Speaker 1: they were talking about that. That seems to be off
13:40
Speaker 1: the table now. So okay, let's assume that we're in
13:42
Speaker 1: a structurally higher inflation environment. Let's assume the two to
13:47
Speaker 1: three percent target of the RBA, for instance, is a
13:50
Speaker 1: pipe dream in our market just now. So what should
13:55
Speaker 1: investors be doing?
13:56
Speaker 2: Look, investors should be focusing on having a port with
14:01
Speaker 2: many different leavers in it. We focus on diversification across
14:05
Speaker 2: asset classes, which we've talked about a little bit so far,
14:09
Speaker 2: but you also need to sort of position within those
14:12
Speaker 2: asset classes diversification as well. You know, in your public
14:16
Speaker 2: equity market, whether it's Aussie or international, it's fine to
14:20
Speaker 2: have some growth, one needs to have some value. Really,
14:24
Speaker 2: probably even more so now than a year ago. One
14:27
Speaker 2: needs to be looking at a long short, more nimble
14:30
Speaker 2: manager increasingly, James, and you'd be well aware of this,
14:33
Speaker 2: and I know you've talked about it in some of
14:35
Speaker 2: the other pods. Is the evolution in the alternatives market.
14:40
Speaker 2: And you know, alternatives, for those people that are aware,
14:43
Speaker 2: are really investment strategies that are designed to be non
14:46
Speaker 2: aligned or uncorrelated to your other parts of your portfolio.
14:52
Speaker 2: And you know, with a question of what to do now,
14:56
Speaker 2: we're basically filling that latter bucket. We're filling and invest
15:00
Speaker 2: in alternative assets.
15:02
Speaker 1: Okay, can you specify what they are because I'm guessing
15:06
Speaker 1: it's not actually private credit on listed private credit. I'm
15:10
Speaker 1: guessing it's not some of the more obvious because you
15:13
Speaker 1: say they're non correlated. Yeah, spell them out if you would.
15:17
Speaker 2: Yeah. I mean, one great example that we've been investing
15:21
Speaker 2: in recently is a royalty stream fund So you know,
15:25
Speaker 2: these provide returns linked to production of a mine, or
15:29
Speaker 2: revenue for a healthcare product, or even for music or
15:34
Speaker 2: movie royalties. These are income style products that are designed
15:39
Speaker 2: to perform well regardless of the economic backdrop that would
15:43
Speaker 2: be one. I think infrastructure and even energy transition is
15:47
Speaker 2: a very interesting space for us at the moment. We
15:50
Speaker 2: talked about gold as being a real asset. I think
15:53
Speaker 2: infrastructure probably is very aligned to being similar.
15:56
Speaker 1: Infrastructure has been. It's been a sleeper for a while, hasn't.
15:59
Speaker 1: It is great for a long time, but it's not
16:01
Speaker 1: been great for the last few years.
16:02
Speaker 2: Is that fair to say, Yeah, that's fair to say.
16:05
Speaker 2: But you know, we've had a different environment in that time,
16:08
Speaker 2: low inflation, and now we're probably facing, as we just discussed,
16:12
Speaker 2: an inflation of the environment, and real asset infrastructure funds
16:16
Speaker 2: with long duration contracts often inflation protected contracts, you know,
16:22
Speaker 2: like a transurban for example. We all know as inflation
16:25
Speaker 2: goes up, we're paying more on our toll roads. It's
16:27
Speaker 2: a good example of what other infrastructure assets to.
16:31
Speaker 1: It sounds like it's mostly infrastructure funds been rather than
16:35
Speaker 1: shares for the average Astrian investry. There's that many of
16:38
Speaker 1: them left. Cube has just gone off YEP, which I
16:40
Speaker 1: suppose was infrastructure, Sydney Airport of course being the famous one.
16:44
Speaker 1: So you mentioned transurban utilities. Did they fit into that?
16:48
Speaker 2: Yeah, they would fit into certain infrastructure funds absolutely.
16:51
Speaker 1: Mm hmm.
16:52
Speaker 2: Okay, and really the evolution and you mentioned private credit
16:55
Speaker 2: and we've seen how aggressively that's grown. We're seeing the
16:58
Speaker 2: similar thing now and structure. More and more infrastructure managers
17:03
Speaker 2: are knocking on our door, so I think you know,
17:05
Speaker 2: they're seeing where the money is flowing sort of our
17:08
Speaker 2: end of town. So i'd expect that trend to continue.
17:12
Speaker 1: And your clients are knocking on their doors both sounds
17:14
Speaker 1: of it.
17:15
Speaker 2: Well, they're getting well advised so often reverse inquiry, James, And.
17:22
Speaker 1: What would you expect that? It's a difficult question. Yeah,
17:27
Speaker 1: but an infrastructure fund, what's interest range should an investor
17:32
Speaker 1: listening to the show usefully expect from one? As you
17:35
Speaker 1: know above the cash feed?
17:37
Speaker 2: Well, look, depending on where the cash road is, let's
17:40
Speaker 2: just talk about the net returns we'd expect from them
17:42
Speaker 2: depending on their risk profiles. You know, some are really
17:46
Speaker 2: long and hold assets where more of the IRR is
17:49
Speaker 2: delivered via capital growth. Some of the other funds that
17:53
Speaker 2: we look at, their IRR is driven by yield. So
17:57
Speaker 2: for those driven by yield, we'd expect to sort of
18:00
Speaker 2: say a seven to nine percent star return through a cycle,
18:04
Speaker 2: with a lot of that actually coming back as income
18:07
Speaker 2: into portfolios. Whereas those who were more growth focused, we'd
18:11
Speaker 2: be expecting sort of third eighty to fifteen percent, whereby
18:15
Speaker 2: most of the capitalties returned at sort of at the
18:17
Speaker 2: back end of the investment.
18:19
Speaker 1: Do you include data centers in that.
18:21
Speaker 2: Yes, they'd absolutely be a part of certain infrastructure funds.
18:25
Speaker 1: Okay, okay, very interesting, all right. Now, one of the
18:28
Speaker 1: points I know that I wanted to bring up with
18:30
Speaker 1: you was we told at the very started we before
18:33
Speaker 1: we went on there, we were talking about the traditional
18:35
Speaker 1: notion of the sixty forty portfolio and that forty percent
18:41
Speaker 1: was defensive, and that defensive element was substantially do on
18:46
Speaker 1: the pin by bonds. But when I talk to people
18:49
Speaker 1: like you, I think that forty percent is all sorts
18:52
Speaker 1: of different assets that weren't necessarily in the mix before.
18:56
Speaker 1: Is that the case? And have bonds shrunk and in
19:02
Speaker 1: terms of the pie when you have a bar charge
19:04
Speaker 1: in front of you looking at FilmOn's portfolio.
19:06
Speaker 2: Absolutely, And if you take yourself back to the old
19:10
Speaker 2: you know, live to one hundred argument, you know your age.
19:13
Speaker 2: I'm fifty four, I should have fifty four percent of
19:15
Speaker 2: my money in bonds, and that is not how my
19:18
Speaker 2: portfolio has reflected. But you know, I think it takes
19:22
Speaker 2: me back to that whole question about whether a sixty
19:24
Speaker 2: forty seventy thirty portfolio is still fit to purpose. And
19:29
Speaker 2: we've been doing a lot of thinking about this internally.
19:32
Speaker 2: I don't think those styles of portfolios are fit for
19:36
Speaker 2: today's world. I think that style of portfolio was really
19:41
Speaker 2: set for a world of low inflation, stable geopolitics, predictable
19:46
Speaker 2: policy from governments, a global growth market where trade was
19:50
Speaker 2: free and open. But you know, I think it was
19:53
Speaker 2: Mark Carney, the Canadian who mentioned recently that the curtains
19:56
Speaker 2: come down on that old rules based order. Today's more
20:00
Speaker 2: volatile returns are more dispersed.
20:03
Speaker 1: Can I just I just for the listener, Can I
20:06
Speaker 1: just clarify something. It's the composition of the defensive part
20:09
Speaker 1: of the portfolio's changed rather than it being in place.
20:13
Speaker 1: Is that right?
20:14
Speaker 2: That's absolutely correct? And you know I talked a little
20:17
Speaker 2: bit about alternatives, and we can dive a little bit
20:20
Speaker 2: deeper into why that's replacing our fixed income allocation.
20:25
Speaker 1: Or do just tell us briefly what you're thinking.
20:27
Speaker 2: Yeah, I mean, look, it was interesting because twenty twenty
20:30
Speaker 2: two was a really challenging year for investors and we
20:33
Speaker 2: had a lot of clients new money coming in that
20:36
Speaker 2: year and correlation of that whole year was a terrible
20:40
Speaker 2: year for investors because everything was correlated. I think equities
20:43
Speaker 2: were down twenty but the bond market was down about
20:46
Speaker 2: thirteen as well. So nothing worked. And I think that
20:52
Speaker 2: it was a real kill switch moment for us because
20:55
Speaker 2: it highlighted that inflation mattered. And so now look, rather
20:59
Speaker 2: than building a rules based portfolio of balanced growth, defensive,
21:05
Speaker 2: you know, we're really looking to build portfolios and I
21:08
Speaker 2: mentioned the word levers before where we have you know,
21:12
Speaker 2: different outcomes that we prepare for and then invest in
21:18
Speaker 2: different investment products that match those allocations or where we
21:23
Speaker 2: think that macro event will play out. So you know,
21:27
Speaker 2: at the moment, we're saying inflation probably looks like it's
21:30
Speaker 2: going to be around for longer, how do we invest
21:33
Speaker 2: for that? And you know, We've talked about goal, we've
21:36
Speaker 2: talked about infrastructure. Will real estate come back in probably,
21:40
Speaker 2: but there's also other things we need to invest for.
21:43
Speaker 2: Growth may come back, so we can't ignore growth, but
21:46
Speaker 2: how do we invest in that as well?
21:48
Speaker 1: So inflation thinking is at the heart of it. Now
21:51
Speaker 1: that is okay, Now, I just want thing before we
21:53
Speaker 1: order questions. This for questions, which I've got some for you.
21:57
Speaker 1: The major super funds, the big super funds. I've had
21:59
Speaker 1: people coming through to me during the week. These are
22:02
Speaker 1: not academics as such, but people who spent their whole
22:05
Speaker 1: life talking and looking at portfolio construction. They're making the
22:09
Speaker 1: point that they think the big super funds are exactly
22:12
Speaker 1: what you're saying you shouldn't have. That is that they
22:15
Speaker 1: are all schools in their construction and heavily reliant on bonds.
22:20
Speaker 1: And now I know they were early into on listed assets,
22:22
Speaker 1: but I wonder do you have any sense whether their
22:25
Speaker 1: portfolios are appropriate for the era where it seem to
22:32
Speaker 1: be entering.
22:32
Speaker 2: It's a really good question. Often where we reflect on
22:36
Speaker 2: you know, I think we see a quarterly update on
22:38
Speaker 2: what the future fund's doing, and we look through their
22:41
Speaker 2: allocation and we always marvel about how small the allocation
22:44
Speaker 2: is towards the equity is you know how large it
22:47
Speaker 2: is to things like private credit and private equity. But
22:50
Speaker 2: I think groups like that have probably got it right
22:53
Speaker 2: for our style of investors. The other super fund I'm
22:57
Speaker 2: probably not well qualified enough to comment those where you
23:02
Speaker 2: don't need to be active. I think what this world
23:04
Speaker 2: is showing us, and so those that are being a
23:07
Speaker 2: little bit more active and a little bit more tactical
23:10
Speaker 2: I suppose the word is I would think would be
23:12
Speaker 2: well positioned for the current environment.
23:14
Speaker 1: Okay, all right, pretty good, We'll take short break. We'll
23:17
Speaker 1: go to deal with some questions. Back in a moment. Hello,
23:27
Speaker 1: Welcome back to the Australians Money Puzzle podcast. James Kirby
23:30
Speaker 1: here with Ben James from a Scale of Partners. Now, Ben,
23:35
Speaker 1: I just we're running out of time. I just do
23:36
Speaker 1: two of these questions. The one from Susie I will
23:40
Speaker 1: leave to another day. Can I just bounce down to
23:42
Speaker 1: the one from Andrew who says, as of today, the
23:45
Speaker 1: ASX two hundred is pretty much flat due to the
23:48
Speaker 1: recent uncertainty in the Middle East. Yes, it is worse
23:51
Speaker 1: than flat depending on the time period. Andrew although the
23:54
Speaker 1: conflict is still paying out. This seems like an opportunity
23:59
Speaker 1: for those with the capacity to put in extra concessional
24:02
Speaker 1: contributions to get to the thirty thousand limit. Yes, would
24:06
Speaker 1: you agree? But he then says, do you think the
24:10
Speaker 1: conflict could have an impact on the expected dividends paid
24:13
Speaker 1: in the future or what did some companies pause their distributions? Well,
24:19
Speaker 1: we saw that in COVID, no talk of it yet.
24:23
Speaker 1: What do you guys think, is that come out with
24:25
Speaker 1: your investment committee and is it a concern.
24:27
Speaker 2: Look, I'll take the first part of the question about
24:30
Speaker 2: the concession or contribution. I'd absolutely be making the benefit
24:34
Speaker 2: of that opportunity. I think the governments are going to
24:36
Speaker 2: get harder and harder for investors to get money in,
24:40
Speaker 2: so I think the question about getting money into super
24:44
Speaker 2: should absolutely be taken up. So I would encourage that
24:47
Speaker 2: to happen. The second question regarding dividends, look more and
24:51
Speaker 2: more what we're seeing in the Aussie equity market a
24:55
Speaker 2: gradual dilution of the dividend yield across the ASEX two
24:58
Speaker 2: hundred moment it's probably three point seven to eight. Maybe yes,
25:04
Speaker 2: I could be a little bit wrong with to be
25:05
Speaker 2: four and a half. Yeah, yeah, yeah, so it has shrunk,
25:09
Speaker 2: and that's for a number of reasons. You know, the
25:11
Speaker 2: makeup of the ASEX two hundred is changing payout ratios
25:15
Speaker 2: in some companies that are lowering. But we look to
25:19
Speaker 2: fixed income and we've talked a lot about that as
25:21
Speaker 2: being a replacement for some of those dividends. They're great
25:25
Speaker 2: for investors when you can get them franking credits and
25:28
Speaker 2: magnificent as well. But I think oss the investors will
25:31
Speaker 2: start looking at their portfolio through total return rather than
25:35
Speaker 2: a yield plus a total return.
25:37
Speaker 1: Because of the dividend shrinkage. Basicly yeah, okay, yeah, I
25:41
Speaker 1: think so. But on the specific question of whether there
25:43
Speaker 1: might be dividend pauses, skips or whatever, basically dividends not
25:48
Speaker 1: being paid, is there a risk.
25:50
Speaker 2: That's an absolute risk? Investors are always dealing with risk.
25:53
Speaker 2: I think the risk of that happening would be if
25:56
Speaker 2: we entered really into that economic crisis and when companies
26:00
Speaker 2: try and shore up their balance sheets for obvious reasons.
26:04
Speaker 2: But whether that's going to happen in the next twelve months,
26:07
Speaker 2: I'm not sociure.
26:08
Speaker 1: Probably not, yeah, all right, probably not. But of course,
26:12
Speaker 1: one last thing something I think I should have picked
26:14
Speaker 1: up on. You mentioned infrastructure, and you mentioned energy transition
26:20
Speaker 1: and possibly property. Could you be a bit more specific
26:24
Speaker 1: about what you guys are thinking about there in terms
26:27
Speaker 1: of going forward for investors. When you say energy transition,
26:32
Speaker 1: I wonder what you mean for the investor and property,
26:35
Speaker 1: I wonder which end of property you're thinking of.
26:38
Speaker 2: Yeah, both the good questions. Look. On the energy transition side,
26:42
Speaker 2: we're dealing with an oil crisis right now, and you know,
26:45
Speaker 2: with crisises come opportunities. Do investors will they start looking
26:50
Speaker 2: at uranium? It will nuclear come back on the horizon.
26:55
Speaker 2: I think investors need to be open to where an
26:58
Speaker 2: opportunity presents as a resort of the crisis somewhere else.
27:02
Speaker 2: So that's something that we're looking at that dives into
27:05
Speaker 2: something more deeper than like a resources investment. I think
27:09
Speaker 2: that makes something worth considering energy transition in other things
27:13
Speaker 2: like infrastructure funds around solar. When I think every time
27:17
Speaker 2: we get these type of focuses on one part of
27:20
Speaker 2: the commodity market currently being oil, you know something else
27:25
Speaker 2: pops up. The second part of the question, property, I
27:28
Speaker 2: think we're looking at property where we can underpin high yield.
27:33
Speaker 2: I'll take it from the last world months. We've been
27:35
Speaker 2: investing in sort of retail shopping centers. We think demand
27:39
Speaker 2: for these styles and assets will continue and where we
27:43
Speaker 2: can get a large part of our return from yield,
27:45
Speaker 2: again that total return being skewed to yield. We're very
27:48
Speaker 2: happy to be investing alongside good partners in that space.
27:52
Speaker 2: Melbourne's a challenge. I think I'm a Melbourne and we're
27:56
Speaker 2: looking at moving our offices right now. There's plenty of opportunity,
28:00
Speaker 2: but our lace is locked in your twenty twenty eight
28:03
Speaker 2: and I'm being told that in twenty twenty eight there'll
28:06
Speaker 2: be a shortage. So you know, we're actually looking at
28:10
Speaker 2: whether office in Melbourne is something worth looking at. Based
28:13
Speaker 2: on those.
28:13
Speaker 1: Thoughts, we have listeners from all around the country, so
28:17
Speaker 1: I don't want to bore them with local talk. But
28:20
Speaker 1: the vacancy rate on the same killder Road District office
28:22
Speaker 1: district is thirty five percent, so I don't think there's
28:24
Speaker 1: going to be a shortage too soon. But hey, you
28:27
Speaker 1: never know that realistate agents might be telling you the truth.
28:29
Speaker 2: Ben, I'm talking more Colins Straight College.
28:32
Speaker 1: Of course, You're you're talking at Prime Prime Prime Prime. Yes, indeed,
28:35
Speaker 1: thanks very much for coming on the show, Ben James.
28:37
Speaker 1: Great to talk to you.
28:38
Speaker 2: Great to talk to you, James.
28:40
Speaker 1: That was Ben James of Escala Partners. Thanks folks for listening.
28:43
Speaker 1: Do keep the emails rolling the money puzzle at the
28:46
Speaker 1: Australian dot com dot au. We'll just have one show
28:50
Speaker 1: next week, not too because of Easter, watch out for that.
28:53
Speaker 1: Today's show was produced by Tiffany I can talk to
28:55
Speaker 1: you soon, Agin Stan