Morningstar Adviser Research Centre: year in review 2019 |
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<p><strong>Glenn Freeman</strong>: We come to the end of another year. And as always, there's been a number of highs and lows for investors. We've taken this opportunity to speak to a number of our analysts about what's really stood out for them, what’s moved the dial in 2019 and looking forward into 2020 across financial services, energy markets, infrastructure, and some of the other sectors that really move our markets here in Australia.</p>
<p><strong>Nathan Zaia</strong>: So, I think 2019 is a year that most of the banks will want to forget, I mean, the sector was struggling with low credit growth and pressure on margins. But then just the magnitude of the customer remediation costs really surprised us and later in the year, the regulator scrutiny and actions they've taken against the banks could lead to massive penalties. So, I think it's been quite a tough period for the banks.</p>
<p><strong>Gareth James</strong>: So, I think the interesting trend we saw in 2019 was the impact of interest rate cuts on company valuations and particularly on technology stocks where we've seen strong trends continue throughout the year. We've seen companies like WiseTech Global and Xero increase their share prices and reach pretty surprising valuations.</p>
<p><strong>Brian Han</strong>: So, in the telecom sector, I think the most – the thing that stood out the most is how determined the ACCC was in trying to prevent this merger between TPG Telecom and Vodafone Australia. It is saying essentially that if we prevent this merger, TPG will resurrect its ambition to enter the Australian mobile network space, which of course TPG itself has publicly said that we are not going to because privately, I think it knows that it doesn't have the financial resources. It is actually hampering Vodafone in the Australia mobile space and TPG in the Australian broadband space, which is ironic when you consider what the mandate of the ACCC is.</p>
<p><strong>Mathew Hodge</strong>: It was all about the tailings dam failure in Brazil, wiped out 6% or 7% of iron ore. Iron ore price went from around 60 bucks to I think it peaked over 120 and still around kind of 90 bucks now. That was really the story of 2019. You had a supply shock. You also had China on the demand side. Steel production in the first half of 2019 in China was 10%, massive demand for iron ore. That was unexpected. 2020, I think, we're going to see that unwind.</p>
<p><strong>Peter Bull</strong>: We came into the year with some large positions in some areas that were a bit nervous with the trade war talk coming on. Semiconductors was one; luxury items, consumer discretionary is another. And it turned out, 2019, they were some of our best positions. I think the other big story in 2019 for us was markets are up 20%, 30% again, and for us, I think that's probably typical in such a low interest rate environment. So, it's kind of like the whole world has gone with bond math where you've got low interest rates and a 1% move means like 100% move in your capital investment. So, if the new normal is sort of low returns or has been the low returns to be expected going forward for risky assets, because the price is so high, that might be true in a long-term sense, but meanwhile, year-to-year, I mean, we should expect 20% one way or the other. So, nobody should be too surprised by that.</p>
<p><strong>Lex Hall</strong>: I think the biggest story of the year was probably the thumping election win by the coalition because the pundits said that they were going to lose and it was dubbed the miracle election because they ended up winning, they ended up defeating labor. It's the first time since 2001 that a federal government in Australia has won a third consecutive term and it of course removed all that uncertainty about franking credits, which is so important to our investors and it removed uncertainty about changes to negative gearing and capital gains, which obviously, investors were worried about. Also, it increased industrial relations regulation and a boost of the stock market, in particular banking stocks, which rose between 6% to 8%.</p>
<p><strong>Emma Rapaport</strong>: Yeah, I think, as one of the younger members of the team this year, with interest rates being as low as they are, it really struck me how a lot of my friends were talking about cash rates, were talking about the rates that they were getting from their banks, and really thinking about how else they could use their money to get better returns, you know, should they start investing and what should they start investing in? For me, it really spurred a conversation around getting started in the market. So, for me, that was a really interesting development from the year and something that was really interesting to write about.</p>
<p><strong>Mark Taylor</strong>: I think the big thing in the oil and gas sector was the cost reductions, unit operating costs, particularly for companies like Santos, went surprisingly low. Company is doing a fantastic job of stripping costs out, doing things more efficiently, driving cash flows higher. And the other thing of course, in 2019, which is leading into 2020 as well, is the front-end engineering and design that was being undertaken on a number of major project expansions. Final investment decisions for these projects will be taken in 2020. So, that's the thing to look for in 2020, something that could be a catalyst for share price appreciation of a number of stocks.</p>
<p><strong>Adam Fleck</strong>: One of the surprising things about 2019 has been the rapid fall in interest rates and of course, that's had a very positive impact on a lot of our Australian coverage, perhaps most notably in the highly leveraged transportation infrastructure sector. I cover Auckland Airport and Sydney Airport. And both companies have seen their shares, their security prices rally sharply throughout the year. So, in our opinion, the shares are simply not pricing in the risk that we see going forward for continued passenger slowdowns, particularly if there's an economic slowdown, even in places like China, which is an important source of traffic for these reports and of course, very long term, if interest rates start to rise again. So, as investors and analysts, we will be recommending waiting on the sidelines for the two airport securities in our market until there's a margin of safety that's more appropriate.</p>
<p><strong>Alexander Prineas</strong>: So, we saw declining interest rates generally driving property stocks upwards, but I think there were some important distinctions to draw. So, differently, office and industrial exposed stocks such as Dexus performed well, whereas retail stocks like any bar Unibail-Rodamco-Westfield, Scentre Group or Vicinity Centres, the share prices were weaker there. So, I think what that shows is that you can't just rely on interest rates pushing the performance for property stocks.</p>
<p><strong>Grant Slade</strong>: Big in 2019 was the contraction that we saw in the Aussie housing starts. So, after peaking in mid-2018, we saw Aussie resi construction contract around 15% in fiscal '19. That said, investors did anticipate that contraction activity fairly well. It would go sort of back to late 2018. Broadly speaking across Aussie housing-exposed names, that impact was well priced in.</p>
<p><strong>Chanaka Gunasekera</strong>: Defensive, momentum and growth stocks have been outperforming – a Australia's been outperforming pure value strategies. And that's a reflection of very poor performance from global equity managers like Platinum, domestic equity value managers like Perpetual, for example. And the key question is, will that reverse in 2020. The other thing is buy now pay later. zip and Afterpay have done really well, fiscal 2019 as well. Now, there's a question mark, will that continue in fiscal 2020 given that the RBA is doing a major review of the payment system and will be looking at by now pay later. They will be looking at things like surcharging, which could impact particularly Afterpay. So, that's a real question mark moving forward in fiscal 2020.</p>

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23/03/2022 Markets focused on floods and bushfires are missing how insurers are cutting costs, doing more digitally and are looking down the barrel of a lift in investment income.

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08/03/2022 Higher inflation, rising interest rates and booming commodity markets are driving a major rotation away from the post-pandemic winners, says Tim Murphy, Morningstar director of manager selection.

03/03/2022 Regulators are likely to be less lenient now the buy-now-pay-later sector is part of the fabric of Australian payments.

23/02/2022 Strong commodity prices, cheap valuations and a head start on interest rate hikes means emerging markets are set for strength, says Dr. Joseph Lai of Ox Capital.

23/02/2022 A belligerent speech from a president signalled the start of the latest phase of Russian agression last night, causing markets to wobble and investors to wonder.

15/02/2022 In an extended interview, Morningstar's Peter Warnes discusses the bear market in US technology stocks, interest rates and growth and his approach to investing outside the US and Australia.

13/02/2022 Morningstar equity analyst Shaun Ler explains why he see valuation upside high for MFG even as shares lose steam.

31/01/2022 The Chinese lunar year is almost over, and what a ride it's been. Morningstar speaks to JPMorgan Asset Management strategist Mike Bell about what's ahead.

23/01/2022 Christine Benz discusses how investors should handle the turmoil, whatever the life stage.

18/01/2022 Empty shelves will negatively impact supermarkets in the second half of fiscal 2022 but the impact on long-term earnings is minimal, says Morningstar analyst Johannes Faul.

17/01/2022 Bank earnings, house prices and China risk: Our experts and analysts discuss what they've got their eyes on in 2022.

24/12/2021 Our experts and analysts weigh in on what mattered for investors last year.

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08/12/2021 Rebalancing your portfolio is one of those beneficial habits that’s easy to let slide. But year-end is an ideal time to check how your portfolio is tracking against your target asset allocation.

03/12/2021 The gold-rated fund manager shares three ideas with long-term potential.

01/12/2021 Long-term investor sees opportunities where businesses are moving towards a zero-carbon future faster than governments.

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29/11/2021 These companies are set to profit from the move to clean energy, says Lazard.

24/11/2021 The results of the COP26 climate summit suggest coal demand is likely to persist for longer than expected.

17/11/2021 And how investors can protect their portfolios.

08/11/2021 Morningstar thinks these moaty companies will remain resilient in the face of inflation and ongoing supply chain challenges.

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19/10/2021 These new US-listed exchange-traded funds will invest in bitcoin futures, not bitcoin itself.

15/10/2021 The ESG outperformance narrative is flawed, new research shows.

06/10/2021 Investors may need to hold more growth assets over the coming years, says Morningstar's Jody Fitzgerald.

01/10/2021 And how G8 Education and Link Administration are positioned for long-term success.

30/09/2021 What Reporting Season August 2021 told investors about the health of the financials sector.

28/09/2021 a2 milk is an opportunity to be greedy when others are fearful.

23/09/2021 Covid's winners and losers are returning to their prior trajectories.

21/09/2021 Sequence-of-returns risk matters for both retirees and savers. Here's why.

20/09/2021 Analysts expect the sector to recover to pre-Covid trading levels once borders reopen.

15/09/2021 Rising customer deposits and access to cheap funding helped Australia's banks stave off net interest margin pressure, but analysts see warning signs.

14/09/2021 Morningstar's Hortense Bioy on how to spot greenwashing and how to avoid it.

13/09/2021 Utilities and infrastructure names battle the impact of covid as private equity and pension funds circle.

10/09/2021 Hydrocarbons poised for a comeback.

09/09/2021 Providers have lifted prices after years of a debilitating chase for subscribers at all costs , says Morningstar's Brian Han.

08/09/2021 What shorting ETFs means for long-term investors.

07/09/2021 Morningstar senior analyst Grant Slade says Brambles secular growth trend is intact despite nearterm headwinds. He discusses results from the building and construction materials sector.

03/09/2021 Miners bask in the glow of iron ore prices while bargains remain in coal.

23/08/2021 Post-merger Woodside would be well positioned to deliver on the value we've seen for a long time, say Morningstar analysts.

16/08/2021 But the sector lacks uniformity, says Morningstar's Christopher Franz.

11/08/2021 Higher wholesale electricity prices bode well for AGL, according to Morningstar senior equities analyst Adrian Atkins.

11/08/2021 Morningstar FundInvestor editor Russ Kinnel describes some direct and indirect hedges for inflation protection.

10/08/2021 Copper and iron ore have benefited materially from China’s stimulus and the developed world recovery. But Morningstar analyst Mat Hodge see these benefit as transitory.

05/08/2021 We believe the transaction has a high chance of succeeding.

03/08/2021 The industry still has significant growth potential.

03/08/2021 Is one of the biggest sponsors of the Olympics positioned for an all-electric future?

23/07/2021 Morningstar's Lex Hall talks micro-cap stock picks with Carlos Gil, chief investment officer at Microequities Asset Management.

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21/07/2021 The head of Australian small and mid-cap stocks at First Sentier Investors has her eye on ARB, Breville and IDP Education.

20/07/2021 The strong performances of global stock markets in 2020–21 are unlikely to be repeated in the coming year says Morningstar's Peter Warnes.

12/07/2021 Morningstar equity analysts warn that equities remain overvalued despite Australia's strong economic recovery.

08/07/2021 Private equity is an exciting area for investors, with lots of hotly-tipped stocks. But there are risks to be aware of, says Pitchbook analyst Dylan Cox.

08/07/2021 Warryn Robertson is looking at French infrastructure, retail pharmacy and tax services.

06/07/2021 Australia's largest banks have excess capital because they cut dividends, were more conservative on lending, divested assets and raised equity last year. Morningstar's Nathan Zaia thinks most of it should be returned to shareholders.

02/07/2021 PEXA burst onto the ASX this week in the biggest float since 2019. Morningstar's Gareth James gives his take on the company's future growth prospects.

30/06/2021 Iron ore prices have been on a tear, boosting the profits of Australia's top miners. How did we get here and is the only way up? Lex Hall sits down with Morningstar's Mat Hodge.

28/06/2021 Morningstar has recently initiated coverage of a food delivery app and a consumer finance product.

24/06/2021 Meeting the deluge of demand is the biggest task for US companies, says Bell Asset Management's Ned Bell.

22/06/2021 Are there still opportunities in the biotech sector now the covid-19 vaccine roll out is underway? We ask International Biotechnology Trust manager Ailsa Craig

21/06/2021 Morningstar's director of Asia equity research is confident the e-commerce giant will bounce back.

18/06/2021 A wide moat and attractive dividend potential are among the key takeaways of Woolworth's decision to demerge from the liquor and hospitality group.

15/06/2021 Lazard Asset Management's Warryn Robertson explains how companies in the Global Equity Franchise fund have adjusted to covid, and assesses the threat of rising inflation.

11/06/2021 Magellan's Craig Wright tells Emma Rapaport why it is leading the charge in the active ETF arena and how its global equity product works.

10/06/2021 Callum Burns of ICE Investors explains his conviction in pharmaceutical distributor Ebos, PSC Insurance Group, and elite sports analytics provider Catapult.

09/06/2021 Callum Burns explains how ICE Investors identifies companies with original products and sticky customer bases.

08/06/2021 They’re building an empire.

07/06/2021 A year ago the oil price went negative. How have oil giants handled the past 12 months and what's the outlook from here? Morningstar analyst Allen Good explains.

04/06/2021 As the investment world goes crazy for crypto, Morningstar Investment Management's Dan Kemp explains what to consider before putting it in your portfolio

03/06/2021 The airline sector is set to recover as international travel resumes. Morningstar analysts think Wizz Air offer the best opportunity among low-cost carriers.

28/05/2021 4D Infrastructure's Sarah Shaw outlines the investment case for Spanish multinationals Cellnex, and Iberdrola, and the potential of Mexican airports.

28/05/2021 The SEC continues to sort out its regulatory concerns.

27/05/2021 We’re raising our fair value as sales hit new highs—but investors need to put it in perspective, says Andrew Willis.

25/05/2021 Covid-19 has enhanced rather than impeded the future for global infrastructure, says Sarah Shaw of 4D Infrastructure.

24/05/2021 Tribeca's Jun Bei Liu also explains why she sees opportunity in sleep apnea specialist ResMed as well as Treasury Wine Estates.

19/05/2021 American Century Investment's Patricia Ribeiro sees growth in Chinese battery technology, biologics, and building materials in Latin America.

18/05/2021 Robotics is a fast-growing area of tech, creating opportunities in medical, logistics and life sciences sectors and much more.

18/05/2021 Square's Bitcoin purchase is more marketing than operations

10/05/2021 If Elon Musk ends up delivering, we might need to raise our fair value to US$1500 a share.

07/05/2021 Banks and resources are poised to deliver dividends, and Treasury Wine Estates and BNPL are worth a look, says Jun Bei Liu of Tribeca's Alpha Plus long/short fund.

05/05/2021 Digital banking, ecommerce and 5G are among the key trends set for rapid growth, says Patricia Ribeiro of American Century Investments.

04/05/2021 Analysts have made changes to the fixed interest, property, cash and equity allocations of Morningstar's Model ETF Portfolios to take advantage of the current market environment. They've also refreshed some of the funds in the portfolio.

30/04/2021 The stock market and the economy are not the same. Here's why.