IML investment update – November 2022

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IML Portfolio Managers, Hugh Giddy and Daniel Moore, discuss what happened in the markets in November as well as the performance of the IML funds.

Edited transcript

Hugh: Markets have continued to be very strong in November with global markets up 6% and the Australian market up 6.5%, driven largely by resources. Although we had a good month with our industrial shares, the fund underperformed the markets rising 4.6% which we felt was a pretty good result, didn’t we Dan?

Daniel: Yes, I think so. And if you look at what drove the market, iron ore was a big driver up around 25% for the month. And that led to BHP and a lot of those big index weights being up materially. Interestingly though, oil was actually down 10% for the month.

Hugh: But the energy stocks were still up.

Daniel: It was definitely a month for the resource companies. But, by and large, I think, the companies within our portfolio, we were really happy with how they performed.

Hugh: Sure. And we had some out of season profit results that were pretty good.

Daniel: Yes, so the first one that comes to mind is Orica. A large holding in the fund had a really strong month, really strong result. Their profit was up 50% for the year,  which is obviously coming off a pretty low base where they had some COVID issues with mining volumes were low. So that’s now recovering. They’ve also had some pretty big price rises as well. Encouragingly, the outlook statements were strong and the outlook for the company looks really good for the next few years because the explosive prices are somewhere around 1200 dollars a ton, and most of their customers are paying around 600 dollars a ton. So, good upside to come, in time.

Hugh: And they’ve also got this very exciting wireless blasting technology that is good for safety, good for explosion accuracy, and a lot of technology coming out of the
company that really excites us.

Daniel: Absolutely. Yeah, I mean, they’ve been investing for a long time, so, those sales should come through in the time ahead. The other company that had a really good result was Virgin Money. And that company, actually, probably our best performer for the month, was up 25%, and their profit on a pre-bad-debts basis was up also 25% and they had a pretty strong outlook statement as well. So, a couple of good results. And then probably one more to talk about was the Lottery Corp, which was a poor performer, I think last month, we bought some more and they had a good rebound this month. They’re up 7% or 8%. So that ended up being a good buy.

Hugh: Yeah. Big run of Powerball jackpots, I think.

Daniel: That helped, yeah.

Hugh: It made the market a bit more excited about them and no results or anything during the period. So, looking forward, I think we think that the world’s still quite a tough place. We’ve got problems with inflation. The Reserve Bank has been raising interest rates, but very cautiously, one could say, if inflation’s still, in the high single digits, and if they’re gonna get that under control, they have to bring demand back in and consumer spending back in. So, we think it’s a tough environment for companies. So we position quite conservatively, quite defensively. That’s the way we normally are positioned, but we think that’s the right positioning going forward.

Daniel: Yeah, I think pricing power is gonna be critical. Passing on those input costs and the quality businesses with pricing power, I think are going to perform much better, than let’s say the more average businesses that don’t have that strong pricing power

Hugh: Sure. In tough times, quality almost always is going to win out.

While the information contained in this article has been prepared with all reasonable care, Investors Mutual Limited (AFSL 229988) accepts no responsibility or liability for any errors, omissions or misstatements however caused. This information is not personal advice. This advice is general in nature and has been prepared without taking account of your objectives, financial situation or needs. The fact that shares in a particular company may have been mentioned should not be interpreted as a recommendation to buy, sell, or hold that stock. Past performance is not a reliable indicator of future performance.