When uncertainty is the only certainty, invest in experience
QuayStreet Asset Management, 14 September 2020
How QuayStreet are investing their way through unchartered territory
The recent lockdown of Auckland to contain a solitary cluster of Covid-19 has surely snuffed any hope, even for diehard optimists, about any sort of economic recovery in the latter half of 2020.
Indeed, those who were banking on a V-shaped recovery will have to settle for a much flatter curve stretching further into the horizon according to QuayStreet Investment Manager Andrew South. “It's not going to be V. It's going to be pushed out, we think for quite a while.”
The optimistic view was that a vaccine would be rolled out before Christmas and that markets would be “really smoking along” says fellow Investment Manager James Ring. However, he believes that the huge amount of Government intervention globally has pushed out the real impact of the pandemic by 12 to 18 months. “The markets are positioned today for much lower growth and for this whole environment to be prolonged.”
Surprisingly, it’s the risk of high inflation that concerns QuayStreet. While he’s not predicting a return to the seventies, James says the Government and central bank stimulus could light the fire of inflation. “Most will say that it's way too early to call this, but the markets are starting to think that we could be getting close to some sort of an inflection point - and the recent performance of gold might be indicating this.”
Adding to the uncertainty are the scheduled elections in New Zealand and the U.S., where a Biden presidency could result in a double whammy of higher taxes for corporates and an increased capital gains tax on individuals. “We think there's probably going to be quite a lot of volatility in some stocks that have made very big gains over the last few years” says Andrew.
A lack of accurate guidance from listed New Zealand companies clouds the picture domestically, although James says it tends to favour more nimble and active fund managers. “The potential for more volatility presents more opportunities for active managers, and it works against the ‘set and forget’ index strategies.”
The key to sound investing for Andrew is still diversification, and to pick stocks with good growth. Being liquid also saw QuayStreet outperform many of its contemporaries in the critical March period when Covid-19 was at its peak. “Unlike a lot of fund managers that struggle with liquidity, we don't. If things happen, we can move quickly.”
One thing exercising the collective minds of the investment team is the future direction of US technology stocks which have performed so well during the pandemic as consumers migrated to the cloud and embraced everything from cybersecurity to online retail and social media.
But the appeal of switching into more traditional cyclicals that are less sensitive to interest rates creates a dilemma says Andrew. “You don't necessarily want to rotate out of today’s growth companies into old economy companies based on price as their business models may continue to erode”
As a specialist in international equities, James is now picking away at more exotic technology companies in emerging markets. He also believes that commodities, like food, and the re-jigging of global supply chains present opportunities.
And while the prospect of negative interest rates appears to loom even larger on the Reserve Bank’s radar after the latest Covid lockdown, James hopes that they don’t eventuate. “I don’t think they work” he says, pointing to Scandinavia’s move away from them.
For investors trying to navigate such uncertain waters, QuayStreet’s focus is on offering a range of risk for investors’ age and stage - from their early years through to retirement. Which is why there’s a comprehensive range of ten actively managed funds that traverse the risk spectrum. “If you're there for the long haul you'll be looking up the risk curve, and if you're older you're likely to be looking down the risk curve” says Andrew.
QuayStreet has a tight knit team built on Andrew’s experience as Chief Investment Officer at major investment firms plus the valuable time that James previously spent as Investment Manager in Australia and US based Pension Funds.
"It's good old pragmatic funds management at the end of the day” says Andrew. “We're prepared to hold cash if we don't have the right answer. We're not chasing unicorns here. It's all about investing for the long haul in good quality companies."
As a student of history, James says that investing in a world dominated by Covid-19, and trying to work out ‘where to next’, is incredibly interesting - and a major challenge. One thing’s for sure, he says “we're going to be playing quite a different hand this time next year than we're seeing today.”
All you need to know about QuayStreet
QuayStreet is a New Zealand specialist funds management firm offering a range of actively managed investment funds. QuayStreet Funds can be used as a standalone investment or in combination with other investments. Investing in the funds is easy. You can start by investing $100 per month or $1,000 as a lump sum. The options are many.
10 Actively Managed Funds
- 3 Diversified Funds for various investor risk profiles: Conservative, Balanced or Growth.
- 4 Sector Funds, for those seeking exposure to certain asset classes or geography: NZ Equities, Australian Equities, International Equities and Fixed Interest.
- 3 Speciality Funds: Socially Responsible Investment Fund, Income Fund (those seeking regular income payments), Altum Fund (those seeking a potentially higher growth/higher risk investment).
How to invest
Complementing an existing investment portfolio
You can use one or multiple QuayStreet Funds, such as the Sector Funds, to gain exposure to a specific asset class or geography.
New to investing?
You can use a Diversified Fund or a combination of Funds, as the cornerstone of your portfolio. This can provide a well-diversified base, suited to your individual appetite for risk.