IML investment update – January 2023

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Hugh Giddy and Daniel Moore discuss the market’s performance during January 2023 as well as the performance of the IML funds.

Edited transcript

Hugh: Optimism is back. Isn’t it Daniel? We’ve had a very, very strong start to 2023 with the World Index up 6.5%, the Nasdaq’s up 11%, the Australian market’s up over 6% and unfortunately, our fund, not surprising in such strong markets up about 3%. But what we’ve seen is a lot of optimism flowed into, what we would consider speculative, risky assets such as cryptocurrencies, meme stocks, junk bonds, and a lot of commodity prices also very strong, So, a very strong start to the year.

Daniel: Yeah, definitely, Hugh. And looking at the sector breakdown, the two sectors that really stood out were Resources, they were up sort of 8% or 9% particularly driven by iron ore, which was up 10%. I think copper was up 8%, aluminium was up 7%, so a very strong month for the resource companies.

And then the other big one was consumer discretionary companies. That sector was up 10% as well, after we saw some early, strong results from a few retailers. So, definitely a month for optimism.

Hugh: Yeah. And not really a month for defensive companies, which is our normal sort of hitting zone. We like quality defensives, and so companies like Telstra, Amcor, Steadfast, did not really participate much in the rally. And to highlight Steadfast, for example, there’s actually some good news. There was no news around Steadfast for us specifically, but insurance premiums are going to continue going up because reinsurance premiums have risen a lot for the insurers. You’ve had a lot of disasters and so forth. So, Steadfast should do well in that higher premium environment.

Daniel: Yeah, absolutely. And then on the positive side, we had some really good performances. Channel 9 was up 10%, sort of going with the retailers, I guess, in terms of this optimism rally. They did have some, I think the rally was mainly due to their holding in Domain, the property listings portal, and that business was up roughly 30% for the month. Interestingly, property listings haven’t improved at all, but people are optimistic that they will improve in 2023. And then the other strong performer was Newcrest, which was up 8% for the month. It’s actually been strong for a number of months, I think it was up 30% from its lows back in October. And as we’re speaking, they just got a takeover offer from Newmont, which is the largest gold company in the world. So that’s good news for Newcrest, and we’re starting off February on a good footing.

Hugh: Sure. Now, talking of starting off, a lot of people look at the statistics and say, a strong January means strong year, now obviously we’re happy for our investors and most people in the financial markets are happy with a strong month. But, are the statistics really saying that you’d wish to back a strong year in this case, Daniel, are you prepared to to place your bet on these odds?

Daniel: Yeah. That’s normally not how we operate. We don’t invest funds based on a strong January. But, to be honest, we are a little bit wary. Investment markets are, the Aussie market’s 1% off its all time high. And if you think about the conditions from when the last time the market was at that level – things have changed a lot. I mean, interest rates are up 300 basis points plus, we’ve got quantitative tightening in place now, not quantitative easing, and while inflation has come down, it’s still very high – we’re talking in the 7’s. So there’s definitely still a lot of risk out there and, we’re happy to be pretty defensively positioned for those risks going forward.

Hugh: Absolutely.