Part of Netwealth's portfolio construction webinar series - Roger Montgomery, founder and Chief Investment Officer at Montgomery Investment Management presented to an audience on 22nd February 2017 and shared his views on major economic trends currently affecting local and global markets, stocks and sectors best placed for growth and what investors should look for in 2017.
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Housekeeping
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This webinar and information has been prepared and issued by Netwealth Investments Limited (Netwealth), ABN 85 090
569 109, AFSL 230975. It contains factual information and general financial product advice only and has been prepared
without taking into account the objectives, financial situation or needs of any individual. The information provided is not
intended to be a substitute for professional financial product advice and you should determine its appropriateness having
regard to you or your client’s particular circumstances. The relevant disclosure document should be obtained from
Netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any
Netwealth product.
While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no
person, including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for any
loss suffered by any person arising from reliance on this information.
Disclaimer
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Roger Montgomery
Founder and Chief Investment Officer
Montgomery Investment Management
Meet today’s speaker
6. • Maximising Wealth & Income
• What has happened? The Great Rotation
• What might happen next?
• Where to find Value & Income Growth
Agenda
Value investing, low rates and uncertainty
15. • Maximising Wealth & Income
• What has happened? The Great Rotation
• What might happen next?
• Where to find Value & Income Growth
Agenda
Value investing, low rates and uncertainty
17. 2016 Rotation Poor Quality is Best Performer
MIM Quality Decile Performance 12mo to Jan 31 2017
1%
19%
7%
21%
26%
24%
13%
18%
60%
76%
1 2 3 4 5 6 7 8 9 10
Notes: All companies with MIM Quality score and market capitalization >$250m as at 31 January 2016; Equal-weight basis
Poorer QualityHigher Quality
18. • Maximising Wealth & Income
• What has happened? The Great Rotation
• What might happen next?
• Where to find Value & Income Growth
Agenda
Value investing, low rates and uncertainty
19. Iron Ore oversupply to resume
Price well above marginal cost of production of 90th
percentile!
20. Rates Lower than the Great Depression
Yield on 10-Year Treasury Bond
36 years of
declining rates
boosting Asset
Prices
1773AD, Captain Cook
crosses Antarctic Circle
}
1929-39, The Great
Depression
21.
22. PE Ratio at record highs
The most expensive is low growth and high debt
Index returns driven by large cap, low growth stocks
23. “Investors snap up Italian 2.85% 50-year bonds. Hunt for returns outweighs bank fears.”
“Austria Sells €2 Billion In 70 Year Bonds at 2.03%”
These top-of-market offerings pose numerous risks that investors are ignoring.
1) interest rates return to more normal levels, bonds trade down. “Lower for
longer” = “inadequate for longer,” “an insufficient return locked in for a
lifetime.”*
2) Pick-up in inflation, or expectations render meagre yields inadequate, so sell
off further.
3) Over the course of 20-50years, credit risks of ‘priced-to-perfection’ obligations
will emerge
Distorted Securities
Unprecedented risks from Magnitude and Duration
NB: 35-year bond bull market, few investors have any experience navigating a sustained increase in interest rates and inflation.
* Mark-to-market losses from merely a 50bp rise in rates would be equivalent to >3years of coupon payments for holders of 30-yr Treasury bonds.
24. • Maximising Wealth & Income
• What has happened? The Great Rotation
• What might happen next?
• Where to find Income Growth
• Type 1. Slow and steady
• Type 2. Taking advantage of overreactions
Agenda
Value investing, low rates and uncertainty
25. Type 1. Challenger Financial Group
Growing with Australia’s Superannuation system
26. 26
• Australia’s 2nd largest operator of 45 Private Hospitals
• Interests in NZ Pathology and AU Medical Centres
Quality business because?
• High barriers to entry (gov’t
$3m/bed cost vs. $1.5m for HSO)
• High incremental ROE
Bright prospects?
• Ageing population
• Expanding the bed base by
15% in 2 years
Type 2. Healthscope
Growing with Ageing Baby Boomers
27. What happened in September?
• Healthscope announces a weaker than expected September 2016 quarter:
• “Various data points across the industry tell us that the average rate of hospital
volume growth generally has slowed. We have seen this impact a number of our
hospitals resulting in increased variability in volumes and case mix month to month
in the first quarter and particularly in September”.
33. | netwealth33
This webinar and information has been prepared and issued by Netwealth Investments Limited (Netwealth), ABN 85 090
569 109, AFSL 230975. It contains factual information and general financial product advice only and has been prepared
without taking into account the objectives, financial situation or needs of any individual. The information provided is not
intended to be a substitute for professional financial product advice and you should determine its appropriateness having
regard to you or your client’s particular circumstances. The relevant disclosure document should be obtained from
Netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any
Netwealth product.
While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no
person, including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for any
loss suffered by any person arising from reliance on this information.
Disclaimer
Thank you
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