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Featuring Hugh Giddy & Daniel Moore

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Portfolio Managers, Hugh Giddy and Daniel Moore, discusses the market’s performance during the first quarter of 2023 as well as the performance of the IML funds.

Edited transcript

Hugh: Daniel, it’s been an incredible quarter, a lot has happened in the quarter, really. In the end, the World Index up 7%, Australian index up 3% and it’s pleasing to note that with all the volatility and movement, our funds have roughly matched the index up about 3% as well. But you’ve had the NASDAQ rising 17% in a quarter, led by the mega caps. It’s not been a broad based rally in the NASDAQ. You’ve had Bitcoin and crypto going up, So there’s been a fair amount of speculation happening again. And yet you have a lot going on, you’ve had the bond market being all over the place, you’ve had some very wild swings, and you’ve had a lot of speculation as to whether Central Bank is going to be raising interest rates much and what’s gonna happen to the economy, but the markets seem to have settled on the idea that there’s not a lot more rate rises to come, and the economy’s going to be fine because unemployment stays low, and somehow inflation’s going to come down anyway. And within that, you also had reporting season in Australia and which went quite well for us. I’m happy to say. But you’ve had this extraordinary recent thing where you had a few bank failures and yet the world index still up 7% for quarter. And with the bank failures, most people know about Silicon Valley Bank and Signature Bank, and effectively, Credit Suisse failed, it had to be taken over by UBS. So a lot going on in the quarter.

Daniel: It’s certainly been a big quarter. And if we looked at the Aussie market, if we looked at the sector breakdown, what drove our index, consumer discretionary stocks had a massive quarter, they were up 10% for March. The other big one was communications. So the Telco’s had another really big quarter as well. And then on the negative side, not surprisingly, the financial sector was down. Around 3% because of that sort of impending banking crisis in the US. So some mixed results, fair to say, and then if we looked at the portfolio more specifically at the stocks, really, we had a lot of great performance in the quarter, a lot of that were stocks we’ve talked about recently, that had really good reporting seasons. Whether it was Brambles or Sonic, or Steadfast, we had a number of really strong performers. Lottery Corp was another, all up in the teens. So some really good results, and what was interesting, all those businesses are market leaders, and they’re all managing this inflationary environment very well, either exercising pricing power or managing their costs or winning market shares. So they all did a really good job. And pleasingly, on the negative side, there wasn’t that many. Really, we only had Aurizon, which was impacted by bad weather, that was down around 8%. And then probably Amcor, Metcash, were down about 3% or 4%, and you can probably just say they got a little bit left behind in the excitement.

Hugh: And then the other thing which you forgot to mention on the plus side is the takeover bid for Newcrest.

Daniel: Of course,

Hugh: So that’s gold exposure, done very well. With that takeover, we did like the project and the value in that business, always hard to call what’s going to happen to the gold price. Of course it’s hard to call what’s going to happen to the economy more generally. So, on the one hand, the market seems to be pricing in that growth is going to continue, that we’re not going to get much of a slowdown, inflation’s going to behave and it’s going to come down in line with Central Bank forecast despite interest rates not really rising. We believe the risk is that perhaps inflation stays more stubbornly high or that growth disappoints a bit because Central Bank interest rate rises and potentially some more interest rate rises actually do bring the economy down to a slower level. We believe in such an environment that quality companies with great franchises like Daniel’s just been talking about will continue to do well in most likely forward scenarios.

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