Latest / What the Flux / Glue Store heads to the glue factory | Insurance premiums set to rise in the double figits | BMW hits the breaks on its profit outlook plus a special guest interview

Transcript

Glue Store heads to the glue factory | Insurance premiums set to rise in the double figits | BMW hits the breaks on its profit outlook plus a special guest interview · What the Flux

• 0:00
  Speaker 1: This is what the flux.
• 0:01
  Speaker 2: I'm Brent and I'm Justin and it's Monday, the twenty
• 0:04
  Speaker 2: second of June.
• 0:04
  Speaker 3: Does the boy.
• 0:05
  Speaker 1: They say a good auction is when there are multiple bidders,
• 0:07
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• 0:10
  Speaker 1: Not only are they expecting to receive bids from Team nine,
• 0:14
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• 0:17
  Speaker 1: believed that Amazon Prime has thrown its hat in the
• 0:19
  Speaker 1: ring for some games as well. If you don't mind so,
• 0:22
  Speaker 1: Juzzy boy, the more bidders, the juicy of the price
• 0:24
  Speaker 1: is expected to be.
• 0:25
  Speaker 2: Love that fux, Sam. We are very excited to drop
• 0:27
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• 0:33
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• 0:44
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• 0:45
  Speaker 1: Three massive stories today, Juzzy boy, let's do it for
• 0:48
  Speaker 1: our first Glue store just became the latest fashion victim
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  Speaker 1: to permanently close its doors after stores for the business,
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  Speaker 1: we're losing too much money for its owner.
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  Speaker 2: Stralian retailer is having a full on meltdown. Be man
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  Speaker 2: so more.
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  Speaker 1: Glue Store is an Australian high end fashioned retailer founded
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  Speaker 1: in nineteen ninety eight and for.
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  Speaker 2: A little while it was one of the really popular
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  Speaker 2: places for teens to spend their casual job paycheck.
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  Speaker 1: Need a fresh pair of vans that would be Glue.
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  Speaker 2: You want a stussy T shirt that would be glue.
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  Speaker 1: A denim jacket with a big print on the back
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  Speaker 1: that is very likely glue and then man.
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  Speaker 2: In its heyday, Glue Store group to thirty stores around Australia,
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  Speaker 2: but in twenty twenty one, Accent Group bought Glue for
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  Speaker 2: thirteen million bucks. That's the asexistid company that also owns
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  Speaker 2: Hype DC Style Runner, athletes Foot.
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  Speaker 1: And who has been part of a hostile takeover that
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  Speaker 1: we spoke about last week.
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  Speaker 2: Yeah, Accent Group had the thinking that they could scale
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  Speaker 2: up Glue Store alongside its other at leisure brands.
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  Speaker 1: But it wasn't going to be for Glue or Accent Group.
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  Speaker 1: With Glue suffering an eight point four million buck loss
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  Speaker 1: earlier this year.
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  Speaker 2: And last week it was made official. All Glue stores
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  Speaker 2: and the online shop are now permanently closed.
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  Speaker 1: And Jazi wait. Although this decision was made a couple
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  Speaker 1: of months ago, the June reckoning has hit Glue like
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  Speaker 1: it has for many other retailers.
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  Speaker 2: So what is the key learning here?
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  Speaker 1: There's a reason why so many retail collapses happen around
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  Speaker 1: the same time time each year, and it's got a
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  Speaker 1: lot to do with the financial calendar.
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  Speaker 2: In Australia, most retailers run on a June thirty financial year.
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  Speaker 1: That means that around now, CEOs and boards are staring
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  Speaker 1: down there annual results, and it's often the time.
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  Speaker 2: Where boards of struggling retailers are asking can we cut
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  Speaker 2: costs and survive another year, or do we call it
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  Speaker 2: quits and close.
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  Speaker 1: Down if the losses are too big to recover. The
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  Speaker 1: decision to shut down often gets made before the new
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  Speaker 1: financial year begins and more costs are incurred and.
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  Speaker 2: Be Man Glues Store ain't the only ones making these
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  Speaker 2: decisions right now.
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  Speaker 3: No.
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  Speaker 1: Recently, other long standing retailers like Barbecues, Galore and Lincraft
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  Speaker 1: have announced plans to close their doors and.
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  Speaker 2: What's the reason these retailers are struggling.
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  Speaker 1: Well, there's a number of reasons, increasing rent, obviously, three
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  Speaker 1: RBA rate hikes, and just general cost of living.
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  Speaker 2: So be man, Gluestre definitely ate the first and certainly
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  Speaker 2: won't be the last retailer struggling right now. Flox, ma'am,
• 2:49
  Speaker 2: we're very excited we're partnering with black Rock to learn
• 2:52
  Speaker 2: more about ETFs. Today, we're going to be chatting with
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  Speaker 2: Melissa Vincent from BlackRock's Private wealth team to break down
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  Speaker 2: the role that ETFs play in building a resilient investment portfolio.
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  Speaker 2: Welcome to it the Flux, Melista.
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  Speaker 3: Thank you so much for having me justin. I appreciate it.
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  Speaker 2: So what role do ETFs play in building a resilient portfolio?
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  Speaker 3: I like to think of ETFs as really being, you know,
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  Speaker 3: the building blocks of your portfolio. They can provide resilience
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  Speaker 3: because they do give diversification, transparency, and liquidity. So I
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  Speaker 3: think we spoke about this the last time I was
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  Speaker 3: on the podcast. Each ETF holds into a basket of assets,
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  Speaker 3: so you know, a basket of equities or a basket
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  Speaker 3: of bonds, et cetera. And so within a single unit
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  Speaker 3: of an ETF, you can have a diversification. So take
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  Speaker 3: the S and P five hundred for example. You know,
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  Speaker 3: in a single trait, you're going to get exposure to
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  Speaker 3: a basket of five hundred of the largest stocks in
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  Speaker 3: the US market. So when you're thinking about building your portfolio,
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  Speaker 3: you want to think of each of those diversified ETFs
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  Speaker 3: as building blocks, so you can have exposure to different
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  Speaker 3: regions or sectors and asset classes. You know, for example,
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  Speaker 3: broad US Australian equities, you know, compliment that with things
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  Speaker 3: like a fixed income exposure, emerging markets or infrastructure. And
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  Speaker 3: the reason why having a diversified in portfolio is important
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  Speaker 3: is it can help smooth outcomes during periods of volatility.
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  Speaker 3: You know, comparing that if you had a small number of.
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  Speaker 1: Individual stocks interesting and what does a set and not
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  Speaker 1: lose sleep well diversified ETF portfolio look like.
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  Speaker 3: So if I was starting out and building my portfolio
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  Speaker 3: from scratch, I would start with my core and then
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  Speaker 3: build on from there. So an easy way to think
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  Speaker 3: about building your core, your set and figet, as you said,
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  Speaker 3: is start with your kind of broad equity exposure. So
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  Speaker 3: I mentioned this before, things like global equities or ubust
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  Speaker 3: equities or Australian equities, and they can kind of be
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  Speaker 3: the bulk of your equities kind of growth part of
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  Speaker 3: the portfolio. Then secondly, you want to think about some
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  Speaker 3: defensive allocations, so something that's going to provide a bit
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  Speaker 3: of ballast, you know, during different periods of market volatility,
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  Speaker 3: and that's where you can think of things like, you know,
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  Speaker 3: high quality fixed income. And then thirdly, another addition is
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  Speaker 3: to think about your kind of precision or more granularrics exposures,
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  Speaker 3: so things like emerging markets or infrastructure or even alternatives,
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  Speaker 3: so they can kind of add a bit of diversification
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  Speaker 3: within your portfolio and kind of act in a different
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  Speaker 3: way from you, you know, your equities and your bonds.
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  Speaker 3: But ultimately your goal is to construct a portfolio that's
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  Speaker 3: diversified enough towithstand different market environments.
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  Speaker 2: And Melissa, we often to hear about atfs a bit
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  Speaker 2: like a basket of different companies all in one investment.
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  Speaker 2: But can you be over diversified with atfs?
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  Speaker 3: In short, yes, you can be. Adding more ETFs doesn't
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  Speaker 3: necessarily improve your diversification if all the ETFs that you
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  Speaker 3: have are highly correlated or have significant overlap. So what
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  Speaker 3: I mean by highly correlated is you want to avoid
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  Speaker 3: building a portfolio where everything behaves in the same way
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  Speaker 3: or is overly sensitive to you know, the same market drivers.
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  Speaker 3: And with overlap, you know, it can lead to unintended concentration,
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  Speaker 3: so you could be taking bigger bets on certain stocks
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  Speaker 3: or sectors without you know, even realizing it. An example
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  Speaker 3: that I like to think of is you know the
• 5:59
  Speaker 3: AI trade. Say you're really bullish on AI and you
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  Speaker 3: want to get as much exposure to it as you can.
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  Speaker 3: You might think you're really diversified by, you know, having
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  Speaker 3: the MAC seven, the Nasdaq a S A P five hundred,
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  Speaker 3: and maybe some of the hyperscalers, but in reality, you're
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  Speaker 3: probably just stacking multiple similar ETFs. So you're really overexposed
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  Speaker 3: to the hyperscalers, but you might be missing out on
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  Speaker 3: the whole stack of beneficiaries from the AI trade.
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  Speaker 1: We know that ETFs have become hugely popular in recent years,
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  Speaker 1: but I'd love to know before ETFs, how did you
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  Speaker 1: investors get this exposure.
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  Speaker 3: So yeah, historically, acting broad market exposure and international markets particular,
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  Speaker 3: even bond markets, it was much more complex and expensive.
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  Speaker 3: You either had to buy the individual securities, which often
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  Speaker 3: required a much larger pool of capital to be able
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  Speaker 3: to build that diverse fad wortfolio. The other way was
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  Speaker 3: through you know, more traditional active management, which you know,
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  Speaker 3: typically came with high fees, less flexibility, and also less
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  Speaker 3: transparency in terms of like what the underlying holdings of
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  Speaker 3: your investment are. So essentially ETFs have democratize access to
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  Speaker 3: building diverse flood portfolios and offering you know, a more transparent,
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  Speaker 3: lower cost and you know, very liquid exposure to virtually
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  Speaker 3: every market in you know, a very simple trade.
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  Speaker 2: Melissa, thanks again for joining us on What the Flux.
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  Speaker 2: Always a wealth of knowledge and great to hear about
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  Speaker 2: all the different ways in which you can invest in ETFs.
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  Speaker 3: Thanks so much, Breton justin appreciate it.
• 7:26
  Speaker 1: For our second story, Australia's biggest insurers have warned that
• 7:30
  Speaker 1: home insurance premiums are going to increase by double digits
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  Speaker 1: every year for the foreseeable future.
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  Speaker 2: Getting to the point where the insurance premium costs more
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  Speaker 2: than the thing you're actually ensuring. So join we will well.
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  Speaker 1: Juzy boy IAG and Suncorp, but two of Australia's the
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  Speaker 1: biggest general insurers.
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  Speaker 2: Yeah, they cover millions of homes, cars, businesses across Australia.
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  Speaker 1: And IAG alone runs NRM A insurance and CGU with
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  Speaker 1: a market cap sitting north of ten bill on the
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  Speaker 1: ASX and then Man.
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  Speaker 2: Late last week IAGCO warned a double digit premium increase
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  Speaker 2: for quote some time.
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  Speaker 1: And why are they charging us the GDP of a
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  Speaker 1: small nation to ensure a weather board house.
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  Speaker 2: Well, it's the classic corporate line of a perfect storm.
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  Speaker 2: We've heard it all go on, rising construction costs, skilled
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  Speaker 2: labor shortages, more frequent natural disasters.
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  Speaker 1: In fact, the insurance costs from natural disasters was sixty
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  Speaker 1: seven percent higher from twenty nineteen to twenty twenty four
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  Speaker 1: than it was the five year period before that.
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  Speaker 2: It's expected to grow ten x by twenty fifty according
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  Speaker 2: to the IGC.
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  Speaker 1: So as the cost of rebuilding homes increases, insurers are
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  Speaker 1: passing those costs straight through to their customers.
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  Speaker 2: So what is the key learning here?
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  Speaker 1: Your insurance premium is not based on what you paid
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  Speaker 1: for your house. It's based on what would cost to
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  Speaker 1: rebuild it from scratch tomorrow, amongst other things.
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  Speaker 2: So Man, when a concrete charges more timber prices spike,
• 8:46
  Speaker 2: and when a sparky's day rate goes up, your premium
• 8:48
  Speaker 2: goes up too.
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  Speaker 1: Right now, all of those things are happening at once. Yeah,
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  Speaker 1: Construction costs in Australia are going through the roof no
• 8:54
  Speaker 1: pun intended. Yeah, these costs jumped about forty percent between
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  Speaker 1: twenty twenty and twenty twenty four and continue to grow
• 9:00
  Speaker 1: each year.
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  Speaker 2: And there's also an undersupply of trades people in Australia.
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  Speaker 2: The cost of engaging skilled trades people grow each year
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  Speaker 2: as well.
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  Speaker 1: So insurers bundle all those rising costs together, then at
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  Speaker 1: a healthy serving of profit margin on top and send
• 9:13
  Speaker 1: you a renewal notice that makes your ia twitch.
• 9:16
  Speaker 2: And unfortunately, b Man, there is no sign of premiums
• 9:19
  Speaker 2: coming back down anytime soon.
• 9:20
  Speaker 1: For our third and final story, BMW has suffered a
• 9:24
  Speaker 1: six percent drop in share price after it hit the
• 9:27
  Speaker 1: brakes on its very own profit outlook for.
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  Speaker 2: The BMW, the blame game has begun. Tell me more so.
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  Speaker 1: BMW is a German based luxury car maker which is
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  Speaker 1: one of the biggest premium car groups on the planet.
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  Speaker 2: We're talking the company behind brands like BMW, Mini, Rolls,
• 9:42
  Speaker 2: Royce and motorad.
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  Speaker 1: Now, late last week, BMW cut its profit margin target
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  Speaker 1: to just one to.
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  Speaker 2: Three percent, and that's down from their previous target four
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  Speaker 2: to six percent.
• 9:52
  Speaker 1: So it's no surprise that shares dropped more than six
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  Speaker 1: percent following this news.
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  Speaker 2: The big culprit here, b Man sure now they reckon.
• 9:59
  Speaker 2: Competition in China is now pretty savage, particularly from their
• 10:02
  Speaker 2: local electric vehicle makers.
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  Speaker 1: And then there's the war in Iran and BMW said
• 10:06
  Speaker 1: it's had a bigger than expected impact on them.
• 10:08
  Speaker 2: Lots of excuses, I'm hearing b Men, especially since BMW
• 10:11
  Speaker 2: already had a profit downgrade in March.
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  Speaker 1: So this revised EBIT margin target of one to three
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  Speaker 1: percent is pretty thin, and raise it thin for a luxury.
• 10:20
  Speaker 2: Car brand, so true, So what is the key learning here?
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  Speaker 1: A company can be selling more cars than ever and
• 10:25
  Speaker 1: still be quietly bleeding out, and EBIT margin is how
• 10:29
  Speaker 1: you can spot the difference.
• 10:30
  Speaker 2: EBIT stands for earnings before interest and tax, and it's
• 10:33
  Speaker 2: essentially how much profit a company makes from its actual operation.
• 10:36
  Speaker 1: Before financing costs and the taxman gets involved. And BMW's
• 10:40
  Speaker 1: EBIT margin target of one to three percent is quite
• 10:43
  Speaker 1: a concerning number for a luxury car maker.
• 10:45
  Speaker 2: Yeah, the whole luxury model is supposed to be built
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  Speaker 2: on fat margins.
• 10:49
  Speaker 1: Ferrari, the gold standard of luxury car profits, runs an
• 10:52
  Speaker 1: EBIT margin close to thirty percent, but.
• 10:55
  Speaker 2: Even Mercedes Benz, BMW's closest rival, is only targeting margins
• 10:59
  Speaker 2: of thee are you to five percent this year, which
• 11:01
  Speaker 2: has fallen from previous years.
• 11:03
  Speaker 1: So you've got two of the world's most prestigious car
• 11:05
  Speaker 1: brands running margins thinner than some budget airlines Fox Sam.
• 11:09
  Speaker 2: If you've got some of your money in cash and
• 11:12
  Speaker 2: wondering what to do with it, to become an investor,
• 11:14
  Speaker 2: our new YouTube series, From Savior to Investor in seven
• 11:16
  Speaker 2: Days will help you every step of the journey. We're
• 11:19
  Speaker 2: dropping episode one today and a new episode every day
• 11:21
  Speaker 2: for the next seven days. To make sure to check
• 11:23
  Speaker 2: out the Flux YouTube channel and the link will be
• 11:25
  Speaker 2: in our show notes.
• 11:26
  Speaker 1: Thanks for listening, and we'll see you on Wednesday.