Portfolio Managers Marc Whittaker and Daniel Moore discuss the market’s performance during November and the performance of the QVE portfolio.
Subtitles for QVE investment update November 2022.
Marc: So we saw a very strong November, which followed on the back of a very strong October, so that’s two very strong months across the world in terms of what global share markets are doing. Lots of uncertainty, lots of volatility still out there, question marks around the terminal interest rates set by the Fed and other central banks. China, inflation, interest rates, a whole heap of things going on, but markets are still very strong. It’s quite an interesting point in markets at this particular point in time, isn’t it?
Daniel: Yeah. Absolutely. Markets I think were up six per cent around the world. Our index was up five and a half, but probably the highlight was the resource sector. It was up 14% for the month,
which is really on the back of the China reopening trade. And what was interesting was during the month China actually went back down into lockdown in many cities. so, that was a bit strange, but probably the big highlight within the resource sector was iron ore up 25% for the month.
Marc: And it’s in that context, the QVE benchmark up over 5%, 5.4%, the QVE fund itself up around 2.6% so not quite keeping along with the benchmark. But, you would expect that in such a strong market, and given our underweight to resources, it’s always gonna be a little bit of a challenge to keep up with that benchmark.
But, having said that, I think a lot of the industrial names that we own, there is some very good quality in that portfolio and a lot of them actually delivered quite nicely, quite soundly across the month as well.
Daniel: Yeah. We had many good winners during the month. We had a few results. Virgin Money was probably the most exciting. They’re up 26% for the month after delivering a really good profit result. Profit funnily enough, before bad debts, grew 25%. So…and they gave a really good outlook statement in regards to margins. And then the other stock, which had a really good result as well, was Orica. Their profits were up 50% for the year, they were coming off quite a weak year pre-Covid last year, where mining volumes were very weak due to Covid restrictions. And they’ve had some good volumes and and some really large price increases. And what’s sort of encouraging about the future is they’ve still got a lot more price increases to come because a lot of their customer contracts are three years. Yeah. So we’ve got some good earnings growth coming through in the future. And probably the last stock to talk about is probably Origin.
Marc: Yeah. So we’ve seen the bid during the month, which is again pleasing up well over 40%. We’ve talked a lot in recent times, in roadshows that we’ve undertaken, about quality on sale.
It’s a bit of a cliché, but certainly quality trading at reasonable prices. And I think that’s a very good example of that type of quality that’s on the market at the moment, and being able to attract a bid, given its trading at such a reasonable level.
Daniel: Absolutely.
Marc: So, which leads us to the outlook and where we think markets may or may not be heading over the next short to medium term. But certainly, that thematic around volatility and uncertainty hasn’t gone away. It’s still very relevant. Even, despite the fact markets they wanted to go higher in the last little while, still invites a lot of questions about where, you know, what’s relevant and what’s important in the next three to six months?
Daniel: Yeah. I think we’ve still got the impact of those rising rates that are yet to be felt. There’s always a bit of a lag with interest rate rises on the consumer and corporate. So we’ll probably see that next year. And also, you know, just inflation is still there: it’s not gone away.
Marc: Rates are still going up right. We’ve still got some reasonable expectation of higher rates, even if the rate of increases aren’t currently as great. But we’re still going higher.
Daniel: Yeah, and with inflation still in the high single digits, I think it’s fair to say we all think, you know, pricing power is gonna be critical. And really the performance differential between an average business which doesn’t have pricing power and a quality business that does have pricing power…over the coming years, that performance differential is going to be quite wide. So, I think the portfolio is well positioned for that tougher outlook.
Marc: Absolutely.
