Money, Money, Money

November Monthly CiN-sights

Globally, governments continue to utilise fiscal policies to support the economic recovery. Here in Australia, the October Federal Budget saw one of the most stimulatory budgets ever. The UK and France have both announced further stimulus in the shape of either extended job support or major business investment schemes, and the US edges closer to a new coronavirus stimulus bill.  

The Australian budget has targeted the transition from immediate COVID-19 funding to supporting the return to growth in the economy. Material new stimulus measures of $41bil in FY20/21 were announced since July’s mini-budget, and will lift to $111bil over 4 years. These measures will see a record budget deficit of -$214bil, or 11% of GDP, the largest percentage deficit since WW-II.

For financial markets this was a pro-growth budget for business and is supportive for risk assets. The major item was the instant asset write-off for businesses with turnover under $5bil (worth $26.7bil), targeting strong support for rapid business investment. Income tax cuts were the second largest item (worth $17.8bil) bringing forward stage-2 tax reductions to be effective from 1st July 2020. Combined with the previously announced JobKeeper extension to March 2021, additional income support for pensioners and tax offset for low-middle income earners should be beneficial for consumer spending. Infrastructure spending is augmented with an additional $10.7bil, with a large use-it-or-lose State allocation, which should ensure quick deployment.

Treasury’s GDP expectations were more positive than current market consensus, expecting FY20/21 growth at -1.50% vs. average -2.80% and FY21/22 at +4.75% vs. average +4.5%. Nevertheless, unemployment estimates are more consistent at circa 8% for FY21, falling to 6.5% in FY22. This should also be positive for growth and consumption, and we have seen some economists recently lift their GDP forecasts on better consumer spending.

There is also a growing belief the RBA will further ease monetary policy at their November meeting, cutting official interest rates to 0.10% from 0.25%. The central bank flagged in their October Financial Stability Review that business failures could rise substantially if trading conditions deteriorate or courtesy of the removal of support measures.

In the US, additional fiscal policy measures continue to be debated in Congress, albeit the two parties appear to be moving closer to an agreement on a new major stimulus deal. President Trump has lifted his offer to $1.8tril, nearly twice the original but still below the Democrats $2.2tril demand. Whilst the impending Presidential election (Nov 3rd) may delay the final approval, expectations are high that fiscal policy will become more expansionary in 2021 regardless of the election winner. Combined with accommodative monetary policy this remains supportive for risk assets.

Additionally, investors are benefitting from a recovery in M&A activity in the US, which is channelling money back into shareholders hands. Levels of activity are pushing back to pre-pandemic levels, with the technology sector/chip manufacturers (Nvidia/Arm Holdings and ADM/Xilinx), pharmaceuticals (Gilead/Immunomedics and Siemens/Varian) and financial services (Morgan Stanley/E*Trade and Eaton Vance) all seeing major deals.



The obvious risk is a resurgence of COVID-19 infections as the northern hemisphere enters the winter and flu season. Europe has seen a recent surge in reported cases and a number of countries (France, Spain, Italy and the UK) have reimposed regional restrictions, but have so far resisted broad-based economically damaging lockdowns. Hopefully this approach remains manageable, prior to a medical solution.

Governments are proactively working to drive economic growth and job creation, taking advantage of low bond yields, whilst AU investors should continue to benefit from a stimulus friendly environment with deregulated lending guidelines and a recovering economy.

Fund Manager Update

Onwards and upwards

A few weeks back, we attended a live Q&A webinar for the Munro Global Growth Fund, presented by the fund’s CIO, Nick Griffin. During the webcast, Nick provided an update on the fund’s performance, key growth themes in focus, and the capital preservation tools at the fund’s disposal.

We have been following Munro’s journey for some time now and are pleased with their continued progress. The absolute return strategy has fared well, generating returns of 37.7% over the 1-year period versus the 3.93% for the MSCI AC World Index AUD. Additionally, the fund also has a strong risk management culture in place which proved beneficial during the March quarter market turbulence earlier this year.

We therefore use this opportunity to provide a brief recap of the fund’s performance over the quarter and highlight some of the key takeaways from Nick’s presentation.

For the quarter ending Sep 2020, Munro delivered a strong performance, 10.2%, driven by stronger equity markets but offset slightly by the strengthening Australian dollar. Positive contributions came from High Performance Computing winners TSMC and NVIDIA, e-commerce giants Amazon and Alibaba, and Innovative Health performers Danaher and Thermo Fisher. Key detractors were short positions including Japanese advertiser Dentsu and hedging related losses on put options and index futures.

(Source: Munro Partners)

As at 30 Sep 2020, Innovative Health occupied the largest share in the portfolio by weight, ~17%, followed up structural growth themes such as Digital Enterprise and E-commerce. Climate Change, including sectors such as clean energy, batteries, building efficiency, and packaging, water and waste, is a new initiative for the fund. Munro currently invests in 6 opportunities with smaller companies and believes the sector to gain significant growth in the post Covid-19 world.

(Source: Munro Global Growth Fund – Sep 2020 quarterly update)

Finally, Munro also adopts a strict capital preservation mindset, reflected in the range of tools available to the fund. These include a flexible cash mandate, formalised stop-loss guidelines, options hedging, and active currency management. Munro employed some of these tools deftly during the March quarter 2020 to offset the decline in fund’s long positions. Whilst we recognize that these tools may not always prove effective, we gain comfort in the fact that Munro has had a long history of using these tools in times of extreme crisis. 

Going forwards, we watch this space closely to observe how equity markets navigate the murky waters of the post pandemic world. Given, we expect the structural shifts expedited by Covid-19 to continue well into the future we find Munro well-placed to benefit from these changes and are optimistic of strong future returns.

For further information and guidance, please contact us here.