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Healthy rebound: How the ASX got its mojo back · The Money Puzzle

• 0:10
  Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
• 0:13
  Speaker 1: James Kirby. Welcome aboard. If you're a share market investor,
• 0:17
  Speaker 1: you might just be a little tired of hearing how
• 0:19
  Speaker 1: great the returns are on the US market and how
• 0:22
  Speaker 1: far behind the Australian share market has been. And that
• 0:25
  Speaker 1: has been the case for some time. But this year,
• 0:28
  Speaker 1: things are changing. Some very healthy earnings coming through on
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  Speaker 1: a trend basis across the board. A good dividend yield,
• 0:35
  Speaker 1: a healthy dividend yield. And of course, currency, folks. The
• 0:39
  Speaker 1: currency risk is now elevated when you are in the U.S. market.
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  Speaker 1: It's not quite as good as it used to be.
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  Speaker 1: Your numbers aren't as good as they look when you
• 0:48
  Speaker 1: take it home for the simple reason that we've been
• 0:50
  Speaker 1: appreciating against the dollar. My guest today was one of
• 0:54
  Speaker 1: the first guests I had in the entire year. Back
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  Speaker 1: in January, Junbei Liu of the 10 Cap Fund. That's
• 1:00
  Speaker 1: a $ 1. 6 billion active management fund. How are you, Junbei?
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  Speaker 2: I'm very good. How are you, James?
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  Speaker 1: Good to see you. Good to talk to you. You know,
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  Speaker 1: the main thing I remember from that show was you
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  Speaker 1: were of the opinion. I mean, there was a couple
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  Speaker 1: of really interesting things. You said the miners would do
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  Speaker 1: very well. They have. You said the banks might do
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  Speaker 1: as well. They haven't. You also said you thought we
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  Speaker 1: could do 10% price this year. That is, we could
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  Speaker 1: gain 10% over the calendar year 2026. First question. Do
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  Speaker 1: you still think that?
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  Speaker 2: I still absolutely think so.
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  Speaker 3: Look, at least we'll get close enough to it. You know,
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  Speaker 3: when we talk about 10% return, it's the dividend that
• 1:42
  Speaker 3: adds on top of the actual capital growth. So dividend
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  Speaker 3: in the Australian market at the moment is closer to
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  Speaker 3: almost 6%, which is pretty high, which is actually very
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  Speaker 3: high for the historical terms.
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  Speaker 2: And then you're adding the capital growth.
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  Speaker 3: And I think that, you know, barring what happened in the,
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  Speaker 3: you know, the CPI now saying potentially one more interest
• 1:59
  Speaker 3: rate increase, we absolutely will get there in terms of 10% return.
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  Speaker 1: So just if you might just put that again, when
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  Speaker 1: we talk about the US generally, we ignore the dividend, right?
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  Speaker 1: Because the dividends are so small and their profits are
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  Speaker 1: so big. But you're saying that our, what's the breakup
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  Speaker 1: you think of dividend? I thought our dividend was about
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  Speaker 1: three and a half percent. Our yield was three and
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  Speaker 1: a half percent. But what do you think will make up,
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  Speaker 1: how will you get that 10%?
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  Speaker 2: Yeah.
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  Speaker 3: So I think for Australian market, we'll get to the 10%.
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  Speaker 2: So half of it probably come from five, six.
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  Speaker 3: But so this year we are going to have quite
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  Speaker 3: a reasonable dividend year because our miners.
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  Speaker 2: Are doing so well, so much better than expected.
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  Speaker 1: Yeah.
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  Speaker 3: And if you look at the current result season, what
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  Speaker 3: a miner has done is that instead of just paying
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  Speaker 3: our normal high dividend payout, they actually pay our special dividends.
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  Speaker 3: So You know, so there's more dividend on top of it.
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  Speaker 3: So this year we're getting really this exponeza of cash
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  Speaker 3: flow coming back to investors, you know, and that is
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  Speaker 3: actually generating a lot of return. And remember when a
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  Speaker 3: share price, when a company pay out dividend, the share
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  Speaker 3: price will fall to the dividend amount because it's being
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  Speaker 3: paid back.
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  Speaker 2: Just remember that's normally the case.
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  Speaker 3: And if they pay out special dividend, share price technically
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  Speaker 3: should fall the same amount as the dividend that's being
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  Speaker 3: paid out. This year, you know, we're just getting extraordinary
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  Speaker 3: amount of it. So we get about, you know, we
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  Speaker 3: probably will get to over.
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  Speaker 2: 5%, close to 5%, 6% of dividend yield.
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  Speaker 3: And on top of that, our shares will continue to
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  Speaker 3: grind higher into the second half of the year after
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  Speaker 3: we navigated quite a lot of uncertainty in the first
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  Speaker 3: half of the year.
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  Speaker 1: Well, that's pretty interesting. And I see where you're coming from.
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  Speaker 1: So it's, I suppose, in some ways, it's good news.
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  Speaker 1: We can do the 10%. In other ways, it's not
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  Speaker 1: really due to broad profitability growth like they have in
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  Speaker 1: the US. I mean, they're looking at an EPS expectations
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  Speaker 1: of something in the order of 30%. We're looking at 5%
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  Speaker 1: to 10%. But I want to ask you, do you
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  Speaker 1: see the conditions, are they in place for the ASX
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  Speaker 1: just generally as a share market to get its mojo back, basically?
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  Speaker 1: At least we have earnings growth, don't we? And there
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  Speaker 1: was years we barely had any.
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  Speaker 2: Yeah, absolutely.
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  Speaker 3: So our earnings growth for corporates actually looking actually quite good.
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  Speaker 3: It's partly because of the mix of the index where,
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  Speaker 3: you know, banks are still delivering good, OK earnings. And
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  Speaker 3: then we've got the resources, which is a big component
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  Speaker 3: of the market, is doing very well. And also the
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  Speaker 3: other component, which is interesting because, you know, well, I
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  Speaker 3: know we're saying that Aussie market doesn't grow as much
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  Speaker 3: as the others. But now that we do have parts
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  Speaker 3: of the market finally coming back and that's health care,
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  Speaker 3: You know, healthcare is still quite a reasonable part of
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  Speaker 3: the market, but has been shrinking over the last few years,
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  Speaker 3: just given the poor performance. Now, it certainly seems like
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  Speaker 3: that part of the market is turning the corner. And
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  Speaker 3: recent reporting seasons have seen almost every healthcare company has
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  Speaker 3: reported pretty good numbers and, you know, reasonable outlook as well. So,
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  Speaker 3: you know, that part of the market, I think, will
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  Speaker 3: drive a little bit more growth for our market. But
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  Speaker 3: of course, it's not like the U.S. market where it's
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  Speaker 3: very concentrated in tech. You know, our market, I would
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  Speaker 3: say our market, the growth is steady and solid, whereas
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  Speaker 3: the U.S. market, of course, you know, you've got the
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  Speaker 3: hyper growth of AI and the like. At the moment,
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  Speaker 3: it's calling, has been called into question somewhat by investors.
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  Speaker 1: Is there an argument actually, it's a mildly ironic argument
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  Speaker 1: that we as a market offer something of a non-correlated
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  Speaker 1: market to AI because we're miners and we're banks and
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  Speaker 1: we're healthcare and we're general industrials. I mean, is that something,
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  Speaker 1: is that useful in and of itself?
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  Speaker 2: I think it's incredibly useful. And increasingly now we're seeing
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  Speaker 2: global investors actually talking about the market like Australia, where,
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  Speaker 2: you know, we saw a couple of months so far
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  Speaker 2: this year when investors worry about the AI investment and
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  Speaker 2: all of that. And then you see huge sell-off across
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  Speaker 2: those tech companies. Whereas in Australia, we actually have been
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  Speaker 2: beneficiaries of it. So we suddenly see a lot of
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  Speaker 2: investors come in and say, actually, this market gives you, one,
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  Speaker 2: it's a good dividend and it's got a bit of growth.
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  Speaker 2: At the same time, our miners, believe it or not,
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  Speaker 2: has been the beneficiary of this picks and shovel of
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  Speaker 2: the AI supply chain because they require efficiency. the copper
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  Speaker 2: and the like, and the copper prices is through the roof.
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  Speaker 2: Our mind is.
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  Speaker 3: Benefiting today, not about future earnings, but today. We're actually
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  Speaker 3: selling at very high prices for copper and they're getting
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  Speaker 3: dividend and they pay it back to the investors. So,
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  Speaker 3: you know, I really think that our investors be overlooked,
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  Speaker 3: our markets be overlooked. And now it's becoming a little
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  Speaker 3: bit of a diversification in the global investors portfolio for
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  Speaker 3: its yield, for its secondary impact or benefit of the
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  Speaker 3: AI investments.
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  Speaker 1: And I imagine, I mean, in some ways, what else
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  Speaker 1: are you going to say? You're an active manager. You're
• 6:43
  Speaker 1: going to say that rather than buying an ETF, you
• 6:46
  Speaker 1: buy individual shares. I assume you're going to say that.
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  Speaker 1: So let's take that as read. What are the hot areas?
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  Speaker 1: What are the strong areas? You mentioned health care. You
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  Speaker 1: mentioned miners. Tell us a little bit more about the
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  Speaker 1: health care area, because, again, I'll be a typical investor.
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  Speaker 1: And my impression is, oh, gee, Cochlear had a bad year.
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  Speaker 1: CSL had a horrific year. Ramsey, well, I don't know
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  Speaker 1: what they're doing. Where are you seeing? Tell us more
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  Speaker 1: about that because I'm not familiar with a rebound in healthcare.
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  Speaker 2: Absolutely, yeah.
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  Speaker 3: Look, the healthcare has had a horrendous year and a
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  Speaker 3: horrendous 18 months or if not two years for some names.
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  Speaker 3: It's simply, it's actually a global phenomenon, not just our healthcare.
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  Speaker 3: Because around the world, the inflation, the post-COVID shortage in
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  Speaker 3: nurses and, you know, all of that has just meant
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  Speaker 3: costs has been very elevated for healthcare businesses. And then
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  Speaker 3: while on the demand front, things has been slow recovering
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  Speaker 3: from COVID, at the same time, the US and healthcare
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  Speaker 3: system and China healthcare system all putting pressure, cutting back
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  Speaker 3: on healthcare spend.
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  Speaker 2: So, you know, all of that. So the revenue mix
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  Speaker 2: with the, you know, higher costs just.
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  Speaker 3: Means that most of healthcare businesses really struggled, you know,
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  Speaker 3: around the world and not just Australia.
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  Speaker 2: And then we have very similar sort of thing.
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  Speaker 3: Now, last one month, your large cochlear CSL all talked
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  Speaker 3: to weaker numbers. However, just in the last, probably last
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  Speaker 3: two months or month and a half, both of these
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  Speaker 3: companies are up more than 50% from their low. Of course,
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  Speaker 3: they went down a lot, but they all have significantly
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  Speaker 3: jumped because investors now see, actually, things aren't as bad
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  Speaker 3: as it sounds.
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  Speaker 2: It's not expensive.
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  Speaker 3: Again, people realizing for CSL, that's 13 times, which is
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  Speaker 3: very unusual.
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  Speaker 2: Never seen it before. It's way too cheap.
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  Speaker 3: So they're just returning, recovering to a normal level where
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  Speaker 3: earnings just started showing green shoots.
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  Speaker 2: So that space is really interesting.
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  Speaker 3: Ramsey just reported again, actually talking to very good numbers,
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  Speaker 3: much better than expected. So they have their costs sort
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  Speaker 3: of under control. You know, the federal government did step
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  Speaker 3: in telling, you know, the health insurers have to pay
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  Speaker 3: out some costs to pay for those higher nursing costs.
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  Speaker 2: They can't just pocket all the big margin, right, the
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  Speaker 2: health insurers.
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  Speaker 3: So we have health insurers said, oh, we're going to,
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  Speaker 3: you know, pay out a bit more. And then the
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  Speaker 3: Ramsey now have enough costs to cover the nursing costs.
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  Speaker 3: And then at the same time, the top line is
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  Speaker 3: recovering as well, the revenues.
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  Speaker 1: So it's the rebound in the health care sector, early
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  Speaker 1: stages rebound. But as you say, If you had never
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  Speaker 1: been in healthcare and you went in a few weeks ago,
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  Speaker 1: you'd be up 70% on CSL. You'd be up 50%
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  Speaker 1: on Cochlear. Wouldn't you be smiling? What I want to
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  Speaker 1: ask you, is the strength and perceived rebound in healthcare,
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  Speaker 1: is it the usual suspects? Is it the same group
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  Speaker 1: that we always had, CSL, Cochlear, Ramsey, or are there
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  Speaker 1: any new names?
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  Speaker 2: There is a few new names, but I think mostly
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  Speaker 2: are the larger heavyweight. So we've got Prometheus. Prometheus provide
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  Speaker 2: imaging products.
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  Speaker 3: So that's sort of recovering as well, but that's on
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  Speaker 3: the expensive side. And then there's a few other smaller names,
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  Speaker 3: but these are the bigger ones are the ones that
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  Speaker 3: we're actually at the moment has most value. Now, healthcare,
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  Speaker 3: it's interesting, not only it's earnings recovering and it's cheap enough.
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  Speaker 3: So when an investor look at their portfolio, they always
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  Speaker 3: have a little bit of growth company in there. So
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  Speaker 3: in the US market, like you said, people have just tech,
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  Speaker 3: the AI, the growth, you know, that sort of tech, software,
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  Speaker 3: semiconductors and the like.
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  Speaker 2: Whereas in Australia, we do.
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  Speaker 3: Have our tech, but increasingly investors are now looking at
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  Speaker 3: what is a safe growth company that we can be
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  Speaker 3: sure the earnings not going to get interrupted or disrupted
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  Speaker 3: by AI.
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  Speaker 2: And these are actually healthcare businesses.
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  Speaker 3: They have structural growth drivers, you know, aging population and
• 10:29
  Speaker 3: the like, they go through their tricky parts now, now
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  Speaker 3: seems like the earnings will go back, resume its growth trend.
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  Speaker 3: And that's not impacted, not likely to be impacted by,
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  Speaker 3: you know, the AI and everything. Hospitals, you still need hospitals,
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  Speaker 3: you need, you know, and at this stage, you still need,
• 10:44
  Speaker 3: you know, quite a lot of support services and the like.
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  Speaker 3: So these companies will, and are now taking the spotlight
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  Speaker 3: compared to the more tech, spicy sort of AI growth businesses,
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  Speaker 3: because at this stage, investors just become a little bit
• 10:57
  Speaker 3: more cautious on what that growth will be.
• 11:01
  Speaker 1: It's fascinating. People have been thrashing around looking for this
• 11:03
  Speaker 1: sort of non-correlated investment to AI. And AI is wonderful
• 11:09
  Speaker 1: and all that. Potentially wonderful returns if you have the
• 11:12
  Speaker 1: right stocks. But I hadn't seen that and we haven't
• 11:16
  Speaker 1: really covered it on the show. Very interesting. All right.
• 11:18
  Speaker 1: We'll be back in a moment, folks, for my favorite
• 11:19
  Speaker 1: part of the show always with JB, which is we're
• 11:22
  Speaker 1: going to look at some individual stocks. Okay, which is
• 11:24
  Speaker 1: I'm sure what you all want to hear. Back in
• 11:26
  Speaker 1: a moment. Hello, welcome back to the Australian's Money Puzzle podcast.
• 11:41
  Speaker 1: I'm James Kirby and I'm talking to Junbei Liu, JB,
• 11:44
  Speaker 1: a well-known figure in the market. There's, of course, who
• 11:47
  Speaker 1: runs the 10 Cap Fund. That is very much an
• 11:51
  Speaker 1: active fund. It's a fund that's 1.6 billion or so
• 11:55
  Speaker 1: invested mostly in Australian shares. Since inception, it's returned above
• 12:00
  Speaker 1: the ASX 200. It's done about 9.55%. The ASX has
• 12:01
  Speaker 1: done about 9.1%. And I expect... She is ready to
• 12:09
  Speaker 1: outperform with some improved earnings coming through, of course, for
• 12:16
  Speaker 1: our big stocks. And that's what she's great to talk about.
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  Speaker 1: So just to finish off on the healthcare part, which
• 12:23
  Speaker 1: is so interesting, and it's so long since we've talked
• 12:25
  Speaker 1: about healthcare stocks on the market because they've been such
• 12:28
  Speaker 1: a dreadful patch. They've been recovering. CSL is the big one.
• 12:32
  Speaker 1: It was actually the biggest stock in the entire ASX
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  Speaker 1: for one period. It hit nearly 300 bucks. It fell
• 12:40
  Speaker 1: to $ 90. Shocking fall. Atrocious. I mean, I was so bad,
• 12:45
  Speaker 1: I was wondering, really, should the corporate investigators go in there?
• 12:48
  Speaker 1: How could it be so bad? In any event, it's
• 12:51
  Speaker 1: recovered about 70%. It's up around, if I've got it right,
• 12:56
  Speaker 1: 150 bucks or so. Tell me, what do you think? Like,
• 13:00
  Speaker 1: do you think, what do you think happened? Do you
• 13:04
  Speaker 1: think there's much more to go? Will it ever be
• 13:07
  Speaker 1: the number one stock in Australia again? Will it ever
• 13:10
  Speaker 1: hit those heights again where it was a $ 300 stock?
• 13:14
  Speaker 2: Well, let's go to what happened.
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  Speaker 3: This is a combination of market environment become a little
• 13:19
  Speaker 3: bit tougher, management losing focus, and then it became the outcome.
• 13:23
  Speaker 3: So what happened was during the heydays when the previous
• 13:27
  Speaker 3: management came in, they thought, okay, how do we make
• 13:30
  Speaker 3: an impact as a management for a great business that's
• 13:34
  Speaker 3: done incredibly well for decades?
• 13:35
  Speaker 2: They went out and bought one of the biggest acquisitions
• 13:38
  Speaker 2: here in Australia.
• 13:39
  Speaker 3: They raised a few billion dollars to go and buy V4,
• 13:42
  Speaker 3: which is this biotech.
• 13:43
  Speaker 1: They did that, about $ 250 a share of I recall.
• 13:45
  Speaker 1: That's right.
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  Speaker 2: It was the biggest raising ever here in the Australian market.
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  Speaker 2: Lots of excitement.
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  Speaker 3: And since then, the acquisition went sour. It turned out
• 13:54
  Speaker 3: they didn't do their due diligence properly. They rushed the acquisition.
• 13:57
  Speaker 3: And lots of the molecule, the drugs that they bought,
• 14:01
  Speaker 3: all went generic without them knowing.
• 14:03
  Speaker 2: So they paid the full price for it.
• 14:05
  Speaker 3: So now since then, they've written down about 50% or 60%
• 14:10
  Speaker 3: of the value of that acquisition, gone.
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  Speaker 2: So the management all turned over.
• 14:13
  Speaker 3: And while at the same time, the market condition for
• 14:17
  Speaker 3: its traditional business has become harder, because it's big markets
• 14:21
  Speaker 3: in the US and America started paying attention to how
• 14:24
  Speaker 3: much they're paying healthcare costs. And when Trump came in,
• 14:27
  Speaker 3: he took firm steps in reducing costs for out-of-pocket, so
• 14:32
  Speaker 3: for a lot of drugs and the like.
• 14:33
  Speaker 2: So So the insurers in the U.S.
• 14:35
  Speaker 3: Started refusing to pay out-of-pocket, and then they pushed it
• 14:38
  Speaker 3: back to the consumer. And so everything became too expensive
• 14:41
  Speaker 3: for consumers, so people were reducing costs.
• 14:43
  Speaker 1: It was like a perfect storm for a stock that
• 14:46
  Speaker 1: was priced for perfection. That's right. But did you ever
• 14:48
  Speaker 1: think it would fall to $ 90? And do you think
• 14:53
  Speaker 1: it's a viable investment option for the everyday investor? Yeah.
• 14:57
  Speaker 3: I do think, so I didn't think it was going
• 15:00
  Speaker 3: to go to $ 90 because remember, share market always overreacts.
• 15:04
  Speaker 3: When we look at a company like that, it was growing,
• 15:07
  Speaker 3: but even if it doesn't grow at an earnings multiple
• 15:10
  Speaker 3: of 15 times, we thought it looks very reasonable.
• 15:13
  Speaker 2: It wouldn't go through that. It did briefly.
• 15:15
  Speaker 3: It went down to 13 times, but that's what share
• 15:17
  Speaker 3: market is.
• 15:18
  Speaker 2: When things are tough, everyone just wants to sell it.
• 15:21
  Speaker 3: But that's just an opportunity where, you know, active managers
• 15:24
  Speaker 3: we see. But is it a good viable option? It
• 15:27
  Speaker 3: certainly seems like the company's turned the corner. Now, the
• 15:31
  Speaker 3: big issue at the moment, they still haven't got a
• 15:33
  Speaker 3: new CEO yet, but it seems like with the recent
• 15:36
  Speaker 3: management change and the board stepping in, you know, temporarily.
• 15:39
  Speaker 1: Just to tell listeners, JB, I mean, they have a CEO, right?
• 15:43
  Speaker 1: He's an interim CEO. He's actually an old hand, but
• 15:46
  Speaker 1: they haven't got this sort of global superstar CEO that
• 15:49
  Speaker 1: they're looking for. And that's crucial, is it?
• 15:51
  Speaker 2: That's right. That's right.
• 15:52
  Speaker 3: So I think the current CEO, interim CEO, he's been
• 15:56
  Speaker 3: on the board for quite some time. And previously, we
• 15:59
  Speaker 3: thought he was going to be the new CEO. That
• 16:01
  Speaker 3: was many years ago. And he was such a solid
• 16:04
  Speaker 3: pair of hands. In the last six months, he certainly
• 16:07
  Speaker 3: has restored a lot of confidence.
• 16:10
  Speaker 1: He oversaw a 70% rebound. If he checked out today,
• 16:13
  Speaker 1: he could dine out on that forever.
• 16:15
  Speaker 2: That's right.
• 16:17
  Speaker 3: But they're still very keen to bring external fresh eyes in.
• 16:21
  Speaker 3: And according to the company, they're not too far from us.
• 16:23
  Speaker 3: So we're very much looking forward to it. At least
• 16:26
  Speaker 3: the company's got a good platform. Things are not collapsing
• 16:29
  Speaker 3: as we previously thought. And things are showing green shoots.
• 16:34
  Speaker 3: Every division is showing green shoots. So that's good news.
• 16:37
  Speaker 3: And the company has a very strong balance sheet. very,
• 16:40
  Speaker 3: you know, very good solar business globally. So it seems
• 16:43
  Speaker 3: like a lot of headwinds are all gone now, but
• 16:45
  Speaker 3: now becoming a little bit of tailwind. So with the
• 16:48
  Speaker 3: new person coming in, I don't, doesn't look like he
• 16:51
  Speaker 3: will do.
• 16:51
  Speaker 2: The, you know, the big bath.
• 16:53
  Speaker 1: Yeah, they're right. They do all the write downs. You're
• 16:55
  Speaker 1: saying this CEO mightn't have to do it because they've
• 16:57
  Speaker 1: done them.
• 16:58
  Speaker 2: They've done a lot of them.
• 16:59
  Speaker 3: So we think it's reasonable enough, even if he does,
• 17:03
  Speaker 3: but it will be very small, I think, because the
• 17:04
  Speaker 3: core business is actually doing okay. So we think this
• 17:08
  Speaker 3: is a good, solid investment chance now, even though the
• 17:12
  Speaker 3: share price has rallied pretty much in one week, rallied 30%. Now,
• 17:16
  Speaker 3: usually that means it will probably stabilize here for a
• 17:19
  Speaker 3: few months, but it still doesn't look expensive in the
• 17:21
  Speaker 3: scheme of things of what it could achieve.
• 17:24
  Speaker 1: Okay. I imagine for most listeners, what that means is
• 17:28
  Speaker 1: if you're still in CSL, it should get better from here.
• 17:33
  Speaker 1: And hopefully you didn't cash out. Having bought at 200
• 17:38
  Speaker 1: or 300 or 250, hopefully you didn't ever cash out
• 17:41
  Speaker 1: at 90 bucks. Just shows you just how volatile any
• 17:45
  Speaker 1: stock can be. I think the drama around CSL was
• 17:48
  Speaker 1: that it was our flagship global stock. Non-miner, non-bank stock. And,
• 17:55
  Speaker 1: you know, it blew it. It'll be a long time
• 17:57
  Speaker 1: before they'll be forgiven, I think.
• 17:59
  Speaker 2: All right.
• 17:59
  Speaker 1: Now, on the miners, we talked at the start of
• 18:01
  Speaker 1: the year. You said they were going to have great profits.
• 18:03
  Speaker 1: You said they were going to have great dividends. They
• 18:06
  Speaker 1: sure did. And, of course, Iron Ore, yet again, has
• 18:10
  Speaker 1: held up more than anyone thought. Where are we now?
• 18:13
  Speaker 1: Halfway through the year. BHP, Rio, Fortescue, the big three.
• 18:16
  Speaker 1: What are you thinking?
• 18:18
  Speaker 3: Well, I'm actually thinking BHP Rio, they've done incredibly well
• 18:22
  Speaker 3: because of the copper components, mainly copper.
• 18:25
  Speaker 2: The iron ore, which is Fortescue, actually has done terribly.
• 18:28
  Speaker 3: Because even though iron ore has only just come off
• 18:31
  Speaker 3: a little bit, but Fortescue has its own issues.
• 18:34
  Speaker 2: CapEx blowout and China.
• 18:36
  Speaker 3: Remember beginning last year, we had China targeting BHP shipments
• 18:39
  Speaker 3: for iron ore shipments. And now they're targeting the Fortescue.
• 18:43
  Speaker 3: But essentially, just I know price was too high. So
• 18:46
  Speaker 3: China government just want to bring it down. So I
• 18:49
  Speaker 3: think amongst all of them, BHP, I'm happy holder. I
• 18:52
  Speaker 3: think BHP, it's the copper component is so incredible.
• 18:55
  Speaker 2: It's expensive. I'm still a happy holder there. I think
• 18:59
  Speaker 2: Rio looks okay as well.
• 19:00
  Speaker 3: Fortescue is potentially where I represent opportunity because it's as
• 19:05
  Speaker 3: in like strong buy because BHP We are heading into
• 19:07
  Speaker 3: a weaker season or into a sort of a better season,
• 19:12
  Speaker 3: a better seasonality for iron ore very soon, which is September. September,
• 19:16
  Speaker 3: you will see Chinese steel mills start stocking up their
• 19:20
  Speaker 3: iron ore into the year end, just before the winter.
• 19:23
  Speaker 3: So they need to stock up iron ore. So we
• 19:25
  Speaker 3: should start seeing iron ore price start to pick up
• 19:27
  Speaker 3: by mid-September onwards. So Fortescue's fallen a lot, relatively. I
• 19:31
  Speaker 3: think that actually looks interesting. But look, the copper miners,
• 19:36
  Speaker 3: you want to keep them because demand is so strong
• 19:38
  Speaker 3: coming out of One is global, you know, globally demand for,
• 19:41
  Speaker 3: you know, copper products and also the data centers, you know,
• 19:44
  Speaker 3: got $ 3 trillion of data center investment.
• 19:46
  Speaker 2: They need copper. So copper you want to hold. And
• 19:49
  Speaker 2: then for the scuba, opportunity.
• 19:51
  Speaker 1: Diversified miners are actually a proxy for data. I mean,
• 19:55
  Speaker 1: that's a bit of an exaggeration, but they are a
• 19:57
  Speaker 1: pathway towards data center investment.
• 19:59
  Speaker 2: That's right.
• 20:00
  Speaker 1: Because they're full of copper, like the electric cars. Oh,
• 20:04
  Speaker 1: can I just throw something at you? It's just something
• 20:06
  Speaker 1: I wonder what you would have to say about this.
• 20:09
  Speaker 1: The miners, as you say, the big miners, it's all
• 20:11
  Speaker 1: about iron ore normally. And iron ore didn't hurt them
• 20:15
  Speaker 1: or heal them this year, but copper absolutely helped and
• 20:19
  Speaker 1: really put that premium on their results, particularly BHP, but
• 20:23
  Speaker 1: also Rio, who have, of course, opened this gigantic copper
• 20:27
  Speaker 1: mine in Semandu, which gives them copper, a future pathway.
• 20:33
  Speaker 1: With Fortescue, and that was their sort of play into...
• 20:38
  Speaker 1: into AI and to some, some might argue also into
• 20:43
  Speaker 1: cleaner energy through electric cars, etc. Fortescue took a different bet,
• 20:48
  Speaker 1: didn't they? They had iron ore and they took a
• 20:50
  Speaker 1: bigger bet on green energy and hydrogen, etc. And that
• 20:53
  Speaker 1: seems to have not worked out at all. They might
• 20:57
  Speaker 1: have been much better if they just went off and
• 20:59
  Speaker 1: bought a few copper mines, I'm thinking.
• 21:01
  Speaker 2: That's right. That's right.
• 21:02
  Speaker 3: I think at the moment, investors, when we look at
• 21:04
  Speaker 3: the big miners, one is we want the copper exposure.
• 21:07
  Speaker 3: Two is that, remember, miners are normally really bad at
• 21:10
  Speaker 3: spending money and also buy M & A. So two
• 21:13
  Speaker 3: big miners, BHP and Rio, both have shown capital discipline.
• 21:18
  Speaker 2: So they all want to buy something.
• 21:20
  Speaker 3: But when investors clearly show that's not a good idea,
• 21:22
  Speaker 3: it's such hype, they all step back. And then what
• 21:25
  Speaker 3: they do is that they actually realize more cash and
• 21:27
  Speaker 3: pay it out as special dividends. So Investors like that.
• 21:30
  Speaker 3: Whereas Fortescue, they're still going out, spending so much more
• 21:33
  Speaker 3: than expected. So Fortescue, believe it or not, the dividend
• 21:37
  Speaker 3: actually falls from something like 10% this year to something
• 21:40
  Speaker 3: like 3% next year. So, you know, because they're spending
• 21:43
  Speaker 3: so much more on a lot of those, you know,
• 21:46
  Speaker 3: whether it's green energy, whether it's other areas. Yeah. So,
• 21:49
  Speaker 3: and investors don't know how to generate return from it.
• 21:52
  Speaker 3: They don't know if they're going to get a proper return.
• 21:55
  Speaker 3: So that uncertainty there.
• 21:56
  Speaker 1: It's a capex risk. Yeah. Yeah, it's interesting, isn't it?
• 22:00
  Speaker 1: And the takeover. Takeovers are a very different business than mining,
• 22:05
  Speaker 1: or for that matter, making blood products. Isn't it interesting
• 22:08
  Speaker 1: how you can have a company that's so good blow
• 22:10
  Speaker 1: it on a takeover? And it doesn't matter what scale
• 22:13
  Speaker 1: they are, what they do. It's a totally different business.
• 22:16
  Speaker 1: If you get it wrong, you blow the company. IE, CSL.
• 22:20
  Speaker 1: All right. Banks. Very quickly, I think the one that's
• 22:24
  Speaker 1: on everyone's mind is CBA Banking. It's a fabulous bank,
• 22:28
  Speaker 1: fabulous return on equity, does everything right, but it's at $ 160, $ 170,
• 22:32
  Speaker 1: and all the brokers still say the fair value is $ 100,
• 22:37
  Speaker 1: which would suggest it could drop 30%. The others don't
• 22:40
  Speaker 1: have that. The others are 5%, 6%, 7% above their
• 22:43
  Speaker 1: price targets. CommBank is about 30% above its price target.
• 22:48
  Speaker 1: Is it vulnerable, or do you think it can keep
• 22:51
  Speaker 1: that premium?
• 22:54
  Speaker 3: I think it will keep the premium. And it's still
• 22:57
  Speaker 3: with the best bank. However, I think it's just getting,
• 23:01
  Speaker 3: things just getting a little harder. Recently, when we saw
• 23:04
  Speaker 3: the tax change in May.
• 23:06
  Speaker 1: Sorry, when you say the tax change, you mean the
• 23:08
  Speaker 1: negative gearing and the CGT.
• 23:09
  Speaker 3: Yeah, yeah.
• 23:10
  Speaker 1: Negative gearing because of the home loan risk. That's right.
• 23:13
  Speaker 3: That's all collapsed. So the home loan forward, home loan
• 23:16
  Speaker 3: applications collapsed for the banks. And now we're looking at
• 23:19
  Speaker 3: the end to the end of this year. There's potentially
• 23:22
  Speaker 3: one more interest rate increase coming through. Well, look, I
• 23:24
  Speaker 3: think because the inflation is still looking pretty high, so
• 23:27
  Speaker 3: there's an 80% chance of another interest rate increase. Now,
• 23:30
  Speaker 3: all of that just means that the home loan growth
• 23:32
  Speaker 3: is going to be slow. So I think for the banks,
• 23:35
  Speaker 3: your earning is definitely on the way down. It will
• 23:38
  Speaker 3: keep the premium, but I don't think the share price
• 23:40
  Speaker 3: is going to fall 30%. But in a market where
• 23:42
  Speaker 3: we think the share price market going higher, that company
• 23:45
  Speaker 3: share price is not going higher. I think that the
• 23:47
  Speaker 3: challenge is sitting there, the CBA probably going sideways or
• 23:50
  Speaker 3: a little bit down.
• 23:51
  Speaker 2: You'll get your dividend, which is not very high either
• 23:54
  Speaker 2: for CBA.
• 23:55
  Speaker 1: In terms of yield?
• 23:56
  Speaker 2: It's very, very low. Yeah, it's That's right.
• 24:00
  Speaker 3: So, you know, you probably get 2%, 3%, I think
• 24:02
  Speaker 3: just over 3% dividend yield and the share price might fall,
• 24:06
  Speaker 3: you know, 5%, 0% to 5% in absolute sense. I
• 24:09
  Speaker 3: think share market is going higher, but the banks itself
• 24:12
  Speaker 3: is not really going anywhere.
• 24:14
  Speaker 1: Right. Okay. Now, one last thing I want to talk
• 24:17
  Speaker 1: to you in this segment is about takeover targets. And folks,
• 24:20
  Speaker 1: I'll preface this by telling you an entertaining story. Many
• 24:23
  Speaker 1: years ago, I was involved in an investment publication and
• 24:26
  Speaker 1: we had a contributor who And that contributor ran a
• 24:29
  Speaker 1: takeover hedge fund where the whole business was picking takeovers
• 24:34
  Speaker 1: that might happen and more particularly picking takeovers that had started.
• 24:38
  Speaker 1: And then they would bet basically that there would be
• 24:40
  Speaker 1: increased bids. And so the idea was that this person
• 24:45
  Speaker 1: would write a regular piece about the next takeover target.
• 24:49
  Speaker 1: And can I tell you something? They never picked one right.
• 24:52
  Speaker 1: They never, ever picked one. It was always a surprise.
• 24:58
  Speaker 1: There was constant takeovers, and they never picked the one
• 25:00
  Speaker 1: that happened. And here we are. It's a pretty hot market, right? Takeovers,
• 25:04
  Speaker 1: they're coming. I can't keep up with them. But just
• 25:07
  Speaker 1: at random, like we had Cube recently, which is a
• 25:10
  Speaker 1: very interesting one. We have two wealth managers at the
• 25:13
  Speaker 1: same time, Perpetual and Equity Trustees, both, if you don't mind,
• 25:18
  Speaker 1: in charge of all the charity money in Australia, both
• 25:20
  Speaker 1: being bid for by private equity firms. That's a separate story.
• 25:23
  Speaker 1: A lot of people don't like that. But I just
• 25:25
  Speaker 1: want to put it to you. Will the takeovers keep coming?
• 25:28
  Speaker 1: And has an investor any chance whatsoever of anticipating which
• 25:33
  Speaker 1: one it'll.
• 25:33
  Speaker 2: Be Yeah, look, I think anticipation is always hard.
• 25:36
  Speaker 3: One of the wisdom in funds management or as investing
• 25:39
  Speaker 3: is that you don't position for the takeover because it
• 25:42
  Speaker 3: may never come.
• 25:42
  Speaker 2: Yeah, exactly.
• 25:44
  Speaker 3: And the problem of position for takeover is that you
• 25:47
  Speaker 3: probably position in a bad company.
• 25:49
  Speaker 2: You're probably buying a bad company. That's right.
• 25:51
  Speaker 1: By definition. By definition.
• 25:53
  Speaker 2: That's right. So you don't want to do that.
• 25:54
  Speaker 3: So every now and then you can see company, you
• 25:56
  Speaker 3: can see solid hard assets. And then you can work
• 25:59
  Speaker 3: out discount to that value and you say, okay, potentially.
• 26:02
  Speaker 3: But it may never come. So first of all, never.
• 26:04
  Speaker 2: Position for it.
• 26:05
  Speaker 3: But second of all, though, it is heating up. So
• 26:08
  Speaker 3: this reporting season, actually, we're pretty lucky. We've got two
• 26:11
  Speaker 3: of them. So we've got the Reliance that has been before,
• 26:14
  Speaker 3: and then we've got the CleanAway that's been before.
• 26:17
  Speaker 1: Just to tell the listeners, that's Reliance.
• 26:19
  Speaker 2: What are they?
• 26:21
  Speaker 1: Plumbing or something?
• 26:22
  Speaker 2: Yeah, they do the plumbing products.
• 26:23
  Speaker 1: And what was the other one? CleanAway, waste management. These
• 26:26
  Speaker 1: are very humdrum industrial businesses, but they've had takeovers. That's right.
• 26:32
  Speaker 1: So what does that tell you, JVB?
• 26:34
  Speaker 3: So what does that tell us is that for quite
• 26:35
  Speaker 3: some time now, we have been saying Australian share market
• 26:38
  Speaker 3: looks too cheap. We have a lot of cheap companies,
• 26:41
  Speaker 3: especially if a company doesn't have that exciting sexiness about it.
• 26:44
  Speaker 3: You know, it doesn't have the earning growing massively fast.
• 26:47
  Speaker 3: It kind of get left behind, especially the smaller company. So,
• 26:51
  Speaker 3: you know, it just looked too cheap. So that means
• 26:53
  Speaker 3: that private equity is sitting there with the cash and saying, look,
• 26:56
  Speaker 3: This is way too cheap. I take it private, take
• 26:58
  Speaker 3: some costs out, run a bit better. During a hot market,
• 27:00
  Speaker 3: I float it again. I can make my, you know, 50% return. So,
• 27:04
  Speaker 3: and that is happening. So this reporting season, we've seen
• 27:07
  Speaker 3: six takeover being announced, which is quite incredible. Never seen
• 27:11
  Speaker 3: it so high. And now, actually, I like you, like
• 27:14
  Speaker 3: everyone in the market asking, who's the next one? Now, yeah,
• 27:18
  Speaker 3: who's the next one? Now, I'm not going to predict this,
• 27:20
  Speaker 3: but I do think this one looks good. And it's
• 27:22
  Speaker 3: the lottery call. It's a, you know, lottery corp. They
• 27:25
  Speaker 3: run the Oslotto and, you know, a lot of.
• 27:28
  Speaker 1: Yeah, lottery. Yeah. Okay. Why does that come across your desk?
• 27:31
  Speaker 1: What makes you think that?
• 27:33
  Speaker 3: Oh, because look, the company, again, it's very cheap, infrastructure-like
• 27:37
  Speaker 3: type of earnings, very strong balance sheet, but in the
• 27:40
  Speaker 3: last couple of years has had really bad run of lotteries.
• 27:43
  Speaker 3: So it's got very unlucky. So the earnings down, so
• 27:46
  Speaker 3: no one wants to buy it. And it's sitting in
• 27:49
  Speaker 3: the valuation where it hasn't been that cheap for quite
• 27:52
  Speaker 3: some time. So it certainly looks like a very good
• 27:55
  Speaker 3: target for private equity or any trade businesses because it's
• 27:59
  Speaker 3: stable earnings, predictable earnings, and then ability, you know, you
• 28:03
  Speaker 3: can gear them up.
• 28:04
  Speaker 2: The balance sheet is strong.
• 28:05
  Speaker 3: So that's one that's actually reasonably large and it looks
• 28:08
  Speaker 3: potentially very, very interesting.
• 28:11
  Speaker 1: Okay. Good on you for actually nominating something immediately after
• 28:14
  Speaker 1: telling us it's very hard to do that.
• 28:16
  Speaker 2: It's very hard.
• 28:17
  Speaker 3: At least this company, you know, you can make money
• 28:20
  Speaker 3: even without the private equity buying it out because it's
• 28:24
  Speaker 3: so cheap. The market will recognize it as the luck turns,
• 28:27
  Speaker 3: which at some point we know it will because.
• 28:30
  Speaker 1: Of the probability. It's interesting, isn't it, that luck plays
• 28:35
  Speaker 1: its role, especially in businesses that are about gambling. Okay.
• 28:39
  Speaker 1: Back in a moment, I've got some great questions I've
• 28:41
  Speaker 1: kept for JB and we will have something from Andrew
• 28:46
  Speaker 1: and Joanne and Danny in a minute. Hello, welcome back
• 29:03
  Speaker 1: to the Australian's Money Puzzle podcast. James Kirby here with
• 29:06
  Speaker 1: Jun Belu of the Ten Cap. Active Fund, the 10
• 29:11
  Speaker 1: cap fund, is a active fund manager which specializes basically
• 29:17
  Speaker 1: in finding Australian companies and aiming to beat the average
• 29:21
  Speaker 1: of the market through stock picking, which is an increasingly
• 29:25
  Speaker 1: difficult game. Can I ask you a question without notice
• 29:28
  Speaker 1: about stock picking? If passive investing is getting bigger and bigger,
• 29:31
  Speaker 1: I would have thought that the opportunity for active investing
• 29:37
  Speaker 1: is better rather than worse. Where do you come from?
• 29:40
  Speaker 1: on that?
• 29:41
  Speaker 2: I agree with you. I think it is better as
• 29:43
  Speaker 2: the passive gets better.
• 29:45
  Speaker 3: Because when you think about passive money is that, you know,
• 29:47
  Speaker 3: you invest in the ETF, the passive ETF. What you're
• 29:50
  Speaker 3: buying is essentially resources and banks, right? So that's the majority.
• 29:54
  Speaker 1: In Australia, you are.
• 29:55
  Speaker 3: Yeah, yeah.
• 29:56
  Speaker 2: So that's what it is.
• 29:57
  Speaker 3: So, and then when banks doesn't do well, the overall
• 30:00
  Speaker 3: Australian share market, you know, kind of go flattish, even
• 30:02
  Speaker 3: resource goes up, probably goes nowhere, right? However, under the hood,
• 30:06
  Speaker 3: as an active manager, we finding lots of companies that's
• 30:09
  Speaker 3: been forgotten in the passive land because they're smaller and
• 30:12
  Speaker 3: they are actually.
• 30:13
  Speaker 2: Growing so fast.
• 30:14
  Speaker 3: So by doing so, finding the ones that's being left
• 30:17
  Speaker 3: behind by the passive money, and then you have much
• 30:19
  Speaker 3: better return opportunity. Because the company is growing faster, eventually
• 30:23
  Speaker 3: the share price will get noticed, right, by other investors
• 30:26
  Speaker 3: looking into. Okay, well, things like CSL is a good example.
• 30:30
  Speaker 3: When it shrinks in the passive, there's less and less
• 30:32
  Speaker 3: money going into it. So when the earnings suddenly improved
• 30:36
  Speaker 3: and the share price rallied, Then you have the passive
• 30:38
  Speaker 3: come in and say, oh, actually I need to buy those,
• 30:40
  Speaker 3: buy CSL. I need to buy more of it.
• 30:42
  Speaker 1: But they're buying it after the jump.
• 30:45
  Speaker 2: That's right.
• 30:45
  Speaker 1: They're not buying it at 90 bucks. They're buying it
• 30:47
  Speaker 1: at 150 bucks.
• 30:48
  Speaker 2: That's right. They're buying it at 150.
• 30:50
  Speaker 3: So they're always a little bit slower than the active manager.
• 30:52
  Speaker 3: We're the one for the first bit. So, and then
• 30:55
  Speaker 3: it becomes sometimes become glaringly obvious of some of the opportunities. And,
• 30:59
  Speaker 3: you know, because there's just no one, not, you know,
• 31:02
  Speaker 3: just too many passive money, not really looking at these opportunities.
• 31:05
  Speaker 2: So we definitely see a lot more of it.
• 31:07
  Speaker 3: And some of those opportunities can last for longer than normal.
• 31:11
  Speaker 2: You know, for CSL, for example, it was sitting at.
• 31:13
  Speaker 3: That $ 90 or even below, went below $ 90 for.
• 31:16
  Speaker 2: A bit for three months. In the old days, probably
• 31:19
  Speaker 2: sit there for a month.
• 31:19
  Speaker 1: That's right. Yeah.
• 31:21
  Speaker 2: Yeah.
• 31:22
  Speaker 1: Okay. In point, a good point. I think folks, though
• 31:25
  Speaker 1: we talk about passive investing and ETFs, et cetera, and
• 31:29
  Speaker 1: so many managers don't beat the average and all that,
• 31:32
  Speaker 1: they are facts. It's also a fact that There's always
• 31:35
  Speaker 1: opportunities in the market and there's always price discovery. And
• 31:42
  Speaker 1: you will never, if we talk about it, let's just
• 31:45
  Speaker 1: take Rio, for instance, Rio. If you had bought Rio
• 31:48
  Speaker 1: off the top of my head a year and a
• 31:50
  Speaker 1: half ago, even less, it was selling at about 10
• 31:53
  Speaker 1: times PE. It did a 70% increase in profits and
• 31:57
  Speaker 1: it did a doubling of dividends. No ETF is going
• 32:00
  Speaker 1: to do that for you. So when it comes right,
• 32:03
  Speaker 1: it really comes right with shares. Okay. Andrew asks, what
• 32:06
  Speaker 1: impact would there be on Australia if the US can't
• 32:09
  Speaker 1: control its bond market and it crashes? It seems to
• 32:13
  Speaker 1: be becoming a greater risk. I see a fabulous question, Andrew.
• 32:18
  Speaker 1: The bond market is, well, to the extent it... Do
• 32:23
  Speaker 1: they crash? Well, they don't have to crash. All they
• 32:25
  Speaker 1: have to do is go the wrong way, I suppose,
• 32:28
  Speaker 1: and their yields fly up, and that will just about
• 32:31
  Speaker 1: pull everything else down. Do you... Is that a concern
• 32:34
  Speaker 1: for you? Is that the biggest concern in global markets
• 32:37
  Speaker 1: right now? The bond vigilantes, as they call them, the
• 32:41
  Speaker 1: bond markets kicking back against the Trump administration's treasury management,
• 32:49
  Speaker 1: shall we say.
• 32:50
  Speaker 3: So the traditional wisdom is that if, you know, US
• 32:54
  Speaker 3: 10-year heading towards 5% is the market, they get to 5%,
• 32:57
  Speaker 3: then creates big problem for the economy, for its consumer,
• 33:01
  Speaker 3: for its housing, and then flow on to the economy.
• 33:04
  Speaker 1: I mean, the 10 years, the long, very long is
• 33:07
  Speaker 1: getting close to that, isn't it?
• 33:10
  Speaker 3: It's 4.7 of 4.8, just about.
• 33:15
  Speaker 2: But that's the traditional wisdom.
• 33:17
  Speaker 3: Now, increasingly, we have found that there's a bond market really,
• 33:22
  Speaker 3: first of all, you need to understand why it gets there.
• 33:24
  Speaker 3: It gets there because of fear and everything else. And
• 33:27
  Speaker 3: then it can change very quickly. And two is that,
• 33:29
  Speaker 3: quite frankly, I often feel the bond managers, they have
• 33:32
  Speaker 3: lost investors a lot of money. And, you know, for
• 33:34
  Speaker 3: them to predict what the share market might do, it's
• 33:37
  Speaker 3: often feel, I feel it's, you know, I let them
• 33:40
  Speaker 3: stay in their bond market and share market sort of
• 33:42
  Speaker 3: working out, you know, it's why it goes there. So
• 33:45
  Speaker 3: my view is that at this stage, you know, we
• 33:47
  Speaker 3: see underlying economy in the US is market pretty strong.
• 33:50
  Speaker 3: You know, it's still probably too strong. they will have
• 33:52
  Speaker 3: rate increase coming through. So short end will go higher. However,
• 33:55
  Speaker 3: for the long end to really structurally stay long, stay higher,
• 33:59
  Speaker 3: it's a bit harder to see why it should be.
• 34:01
  Speaker 3: You know, at this stage is that there's something funny about,
• 34:03
  Speaker 3: you know, the US treasury market. And obviously they're stepping in,
• 34:06
  Speaker 3: making a lot of effort and they're going to continue
• 34:09
  Speaker 3: to buy it, to support it. So we will see
• 34:11
  Speaker 3: more and more announcement coming through. And, you know, does
• 34:13
  Speaker 3: it really do anything? I think really just for the confidence.
• 34:16
  Speaker 3: It's bond market is massive. It's very hard to really actually,
• 34:19
  Speaker 3: really technically lower it.
• 34:21
  Speaker 1: You're not, Despite the U.S. abuse, basically, of its privileged
• 34:26
  Speaker 1: position in the markets and the sort of volatility and
• 34:29
  Speaker 1: wackiness of the Trump administration, you're not overly concerned by
• 34:36
  Speaker 1: the bond market at this time? No. Would that be
• 34:38
  Speaker 1: fair to say? Yeah, absolutely.
• 34:40
  Speaker 2: Not overly concerned.
• 34:42
  Speaker 1: Andrew, I hope that's useful to you. Always, folks, this
• 34:45
  Speaker 1: is never advised. Question from Joanne. I have several A reads.
• 34:52
  Speaker 1: And they are cheap. They offer good income. Center, which
• 34:56
  Speaker 1: used to be the West Group, recently upgraded its profit guidance.
• 35:00
  Speaker 1: How are we close to a turnaround for shopping center stocks?
• 35:03
  Speaker 1: I would have said, if we were doing this yesterday,
• 35:05
  Speaker 1: I would have said, well, you know, rates are going
• 35:07
  Speaker 1: to come down, but our local rates, unfortunately, they're not
• 35:11
  Speaker 1: coming down anytime soon. What are you looking at? What
• 35:13
  Speaker 1: do you think about REITs? Do you have any in
• 35:15
  Speaker 1: the portfolio? Yeah, I.
• 35:16
  Speaker 2: I think REITs, they look okay.
• 35:18
  Speaker 3: I think exactly like you said, if it was yesterday
• 35:21
  Speaker 3: before the inflation data, we thought there's no more interest
• 35:24
  Speaker 3: rate increase. Remember, every time when there's an interest rate increase,
• 35:27
  Speaker 3: the valuation for the REITs goes down.
• 35:29
  Speaker 2: So right now, Mark is saying 80%.
• 35:31
  Speaker 3: That feels like a little bit too much reactive to
• 35:35
  Speaker 3: just one data point. So I think it's probably more
• 35:38
  Speaker 3: 50-50 than 80 sort of rate increase. So I think
• 35:41
  Speaker 3: REITs is okay. Just wear one more rate increase is
• 35:44
  Speaker 3: okay for the REITs. And I always have some REITs
• 35:47
  Speaker 3: in the portfolio because they're good income. And if the
• 35:50
  Speaker 3: rates once firmly on hold, and if we're looking at
• 35:53
  Speaker 3: rates going down next year, REITs actually would do very well.
• 35:56
  Speaker 2: They're one of the sector that will do very well.
• 35:58
  Speaker 2: And it's defensive.
• 35:59
  Speaker 3: Remember the rent collectors and a company like Center Group
• 36:03
  Speaker 3: is one of the best there. You know, they have
• 36:05
  Speaker 3: inflation hedged rental increases, which is all hedged.
• 36:08
  Speaker 2: It's fantastic.
• 36:09
  Speaker 3: You know, I actually think, you know, I do have
• 36:11
  Speaker 3: a little bit of center in my portfolio. It's not
• 36:13
  Speaker 3: super cheap. It's on a dividend yield of about, I
• 36:16
  Speaker 3: think it's probably 5%, 6%. And it's growing single digit
• 36:21
  Speaker 3: and not super cheap. But I think it looks fine
• 36:24
  Speaker 3: in the portfolio. Other parts of the portfolio, I think
• 36:27
  Speaker 3: in the portfolio property trust, I do like Goodman Group.
• 36:31
  Speaker 3: I feel it's been very unfairly sold off, you know,
• 36:34
  Speaker 3: just because market worry about data center and everything else.
• 36:38
  Speaker 2: I think this is one greatest company that has.
• 36:41
  Speaker 1: I remember you being a supporter of Goodman Group. And
• 36:43
  Speaker 1: I mean, who isn't? I mean, it's a superb company.
• 36:46
  Speaker 1: It's like Comeback. The only issue is they're too expensive.
• 36:49
  Speaker 1: And you think that just now it's, what, relatively... Well,
• 36:54
  Speaker 1: you phrase it. What do you think of it?
• 36:56
  Speaker 3: I think actually it looks much cheaper now. In fact,
• 36:59
  Speaker 3: it actually underperformed a lot of property trusts, stable property
• 37:03
  Speaker 3: trust companies, mainly because its expansion into the data center, 80%
• 37:07
  Speaker 3: of future work coming through its data center.
• 37:09
  Speaker 1: And people were worried about the concentration risk there.
• 37:12
  Speaker 3: Is that it?
• 37:13
  Speaker 2: Oh, I just think at the moment, people on and off.
• 37:16
  Speaker 3: So this month, everyone's worried about the, you know, the
• 37:19
  Speaker 3: data center, are they going to get returned and the like,
• 37:21
  Speaker 3: but Goldman Group is very different. They first, they make
• 37:24
  Speaker 3: a margin selling their land into the joint venture, and
• 37:27
  Speaker 3: then they are very well funded because they're the only
• 37:30
  Speaker 3: one that have an equity partner, you know, big pension
• 37:33
  Speaker 3: fund globally. And also at the same time, they got
• 37:35
  Speaker 3: the contract, they got the, you know, so they got
• 37:37
  Speaker 3: the tenants and then they don't have risk exposure to
• 37:40
  Speaker 3: all the chips and everything.
• 37:41
  Speaker 2: They don't buy the chips. So some other companies buy chips.
• 37:45
  Speaker 1: It's a picks and shovels argument again. Exactly. Yeah.
• 37:47
  Speaker 2: So this is a better exposure.
• 37:49
  Speaker 3: And then they're not like NextDC where, you know, in
• 37:51
  Speaker 3: two years they'll run out of money because they don't
• 37:53
  Speaker 3: have equity partner to run those data center. Whereas Google
• 37:56
  Speaker 3: group is very different, fully funded.
• 37:59
  Speaker 1: Actually, one last bounce around if you'll forgive us folks,
• 38:01
  Speaker 1: because it's so interesting always with JB on the show. NextDC,
• 38:06
  Speaker 1: several times we've had it on the show. That is,
• 38:08
  Speaker 1: we've had the issue on the show. Australia is a
• 38:10
  Speaker 1: great data center company. Here's the thing. It's $ 14 and
• 38:14
  Speaker 1: it's been $ 14 for years. It seems to me that
• 38:17
  Speaker 1: it's a disappointing company. Is it because of that? Is
• 38:21
  Speaker 1: it because of the endless strain? Is it because they
• 38:24
  Speaker 1: don't have the ability that they must constantly raise capital
• 38:28
  Speaker 1: and they don't have a big brother? Is that what
• 38:30
  Speaker 1: you're saying?
• 38:31
  Speaker 2: That's the problem. That's right.
• 38:33
  Speaker 1: Yeah, right.
• 38:33
  Speaker 3: Okay. So in two years, so the more contract they win,
• 38:37
  Speaker 3: the more they have to spend. And the more they
• 38:39
  Speaker 3: have to raise money. So with the current run rate,
• 38:41
  Speaker 3: which is fantastic, you know, earnings growing 50% and the like,
• 38:44
  Speaker 3: they have to raise money in two years again.
• 38:46
  Speaker 2: And the problem is because they don't.
• 38:48
  Speaker 3: Have an equity partner, you know, like the big super
• 38:52
  Speaker 3: funds and the like, because each data center is so
• 38:54
  Speaker 3: expensive to build. So most, it does show that because
• 38:58
  Speaker 3: Goldman Group has equity partners, it does show that the assumptions,
• 39:02
  Speaker 3: market assumption for NextDC in terms of return is probably
• 39:05
  Speaker 3: too high. That's why they couldn't find the equity partner.
• 39:08
  Speaker 3: That's why they have to tap the debt market or
• 39:11
  Speaker 3: equity market.
• 39:12
  Speaker 2: So I think this is the challenge.
• 39:15
  Speaker 1: Hey, that's very interesting. And no one's actually put that
• 39:17
  Speaker 1: answer to us before, despite all the people we've asked
• 39:20
  Speaker 1: about NextDC. Thank you. OK, final question. Danny, love your
• 39:24
  Speaker 1: podcast and insights. Thank you, Danny. My question is regarding
• 39:28
  Speaker 1: ASX rights issues. This is actually, I'm going back to
• 39:32
  Speaker 1: this question, JB, because I wasn't 100% happy with the
• 39:35
  Speaker 1: answer the last time. Danny had, I noticed there was
• 39:38
  Speaker 1: a rights issuance from Megaport. I only noticed it on
• 39:42
  Speaker 1: the last day before it closed. I was lucky to
• 39:45
  Speaker 1: spot it. Is there any other way, apart from reading
• 39:48
  Speaker 1: every boring announcement, Find out when there's a rights issue
• 39:52
  Speaker 1: for the stocks I hold. Any answer on that one? Okay.
• 39:56
  Speaker 3: So unfortunately, the companies, they will announce it. Usually when
• 40:00
  Speaker 3: the rights issue happens, it announces to the market immediately. So,
• 40:03
  Speaker 3: but as a retail investor, it's always harder because you're
• 40:07
  Speaker 3: waiting for your letter to come through.
• 40:08
  Speaker 1: That's right. And it takes, it's like you read about
• 40:10
  Speaker 1: it and you read about it and it's weeks later
• 40:13
  Speaker 1: you get your letter and it's like, hey, it closes
• 40:15
  Speaker 1: in four days time or something.
• 40:16
  Speaker 3: I actually think maybe the best way is to put
• 40:19
  Speaker 3: an alert from the ASX, you know, so announcement, you
• 40:22
  Speaker 3: get an alert. So if you're using ComSec or other platform,
• 40:25
  Speaker 3: get an alert for the company you invest in and
• 40:28
  Speaker 3: through email or through text, You need an alert because
• 40:31
  Speaker 3: they announce it straight away. And then you get that alert,
• 40:34
  Speaker 3: then you know.
• 40:35
  Speaker 1: Yeah, very good. You put an alert on every stock
• 40:37
  Speaker 1: in your portfolio.
• 40:38
  Speaker 2: Yeah.
• 40:39
  Speaker 1: That's what you would do. It would make sense. Assuming
• 40:41
  Speaker 1: you have a reasonably sized portfolio, maybe 10 or 20.
• 40:44
  Speaker 1: But if you have hundreds, well, that's your problem. But then,
• 40:46
  Speaker 1: of course, good for you if you've got hundreds. Okay. Hey,
• 40:50
  Speaker 1: thank you very much. Great to talk to you as always.
• 40:52
  Speaker 1: And best of luck with your fund. Thank you. Thank you, James.
• 40:55
  Speaker 3: It's always a great chat about the share market. It's
• 40:57
  Speaker 3: very dynamic and this is a good time to invest.
• 41:01
  Speaker 1: It's always a good time to invest. Thank you very much, JB.
• 41:05
  Speaker 1: That was Jun Beilu of the Ten Cap Fund. Today's
• 41:10
  Speaker 1: show was produced by Leah Samaglou. And we had some
• 41:13
  Speaker 1: great questions. And you can see how those questions trigger
• 41:15
  Speaker 1: other questions. And it really starts to give us momentum
• 41:18
  Speaker 1: on the show. Keep them rolling. The Money Puzzle at theaustralian.com.au.
• 41:21
  Speaker 1: Talk to you soon. Thank you.