Monthly, we update our wholesale investors on what’s happening in the market. Running what’s probably the only late-night trading desk from New Zealand, we’re well-positioned to feel the pulse of the market’s direction.
Do you remember the apple-bobbing game?
It was a popular birthday-party game when we were kids in Taranaki. Simple fun.
None of the elaborate ‘take home’ packs my children returned from parties with. If you were lucky, you’d come home with a prize beyond the apple, as well as a piece of birthday cake wrapped in a napkin.
Then, after all the excitement, you’d throw up on the carpet and get in trouble.
Source: Wikimedia Commons
Well, the beautiful 1980s are gone. But volatility and opportunity to grow wealth is back.
This market feels rather like bobbing for apples. It is swiftly up on the excitement that interest rates are to be cut. Then some Fed speaker or another dashes those hopes. And shiny value floats to the surface…
With inflation in the UK now down to 2.3% and the ECB ready to cut rates — potentially as soon as next month — I believe the remaining value evident in Europe won’t sit around forever.
Australia — where we’ve been buying keenly — continues to present great value in the troubled real-estate sector, even while occupancy and rents hold up well. Some discounts to book value are now running at 30% or more in share prices.
I very much doubt if you made an offer to a property owner below 30% of their valuation, they’d respond to you politely.
But in the markets, the bucket has some apples waiting to be plucked.
UPDATE: Goodbye to a successful UK position
Wincanton [LSE:WIN] is a UK logistics business we started buying around 2022.
Source: Wincanton plc
Wincanton drew our attention when the stock price offered us a resilient business at a cheaper price than any of the sector acquisitions back then. It was trading on a P/E of around 5.5, with a dividend yield of about 5.8%.
It dragged its feet in the market while carrying quite high debt. Some investors probably wondered why we’d bought it in the first place.
Then, earlier this year, French shipping firm CMA CGM offered a 52% premium to take over the business in a ~$700 million all-cash deal.
Not long after, a higher bid was received from US logistics business GXO, adding extra premium of around 29%.
This was accepted. The deal completed in April, generating a great profit and proceeds in pounds-sterling for our investors at an opportune time.
We may have now found a couple more Wincanton-like opportunities. That ideal intersection between value, capital preservation, and income (while we wait).
Managed Account performance*
For the month of May 2024, we were basically flat: down 0.06% across the composite portfolio (total aggregate TWR return across all portfolios following the strategy).
Our MSCI EAFE benchmark was up 2.86%.
Our average annualised return since inception is 13.43% p.a.
Please see our performance chart for more details.
Grow with a bobbing market…
We’re bobbing for value in several clearly identified buckets.
With rate cuts — at least from the ECB potentially around the corner — it’s a good time. In fact, contrary to what the financial press often reports, the best environment for equities is when an economy withers and central banks are ready to try and get it going again. If history is anything to go by; bull markets like liquidity.
If you’d like to add funding at this point, we will be able to add further quality positions to your account.
Regards,
Simon Angelo
Editor, Wealth Morning
*Past performance is not an indicator for future performance. Your actual portfolio will differ from the composite portfolio mentioned. The information contained in this document does not constitute an offer to sell or a solicitation to buy an investment, nor should it be construed as investment advice. Wealth Morning Managed Accounts are available to Eligible Investors and Wholesale Investors (not to Retail Investors) as defined in the Financial Markets Conduct Act (2013).
