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Invest in inflation. It's the only thing going up.

-- Will Rogers

Every day we read about higher costs of food, energy and property via higher interest rates, while our pay packets don't seem to be rising as fast as the cost of living. 

We're being told to learn to cut back on our quality of life and to expect lower returns going forward from our investment portfolios because of ostensibly more difficult business conditions and, prima facie, higher than typical stock valuations.

The spigots of 'helicopter money' opened by central banks all over the world are slowly being closed along with rising interest rates that make the traditional 'safe haven' of fixed income, riskier than recent historical experience would suggest. In addition, the spectre of war is a key risk as the probability of conflicts increases during poor economic times.

What is an investor to do? In an environment of low economic growth, high inflation (a situation known as stagflation) as well as tightening monetary and fiscal policy along with geopolitical risks.

A sensible thing one can do is to put more onus on tangible, hard assets versus the recent popularity (and erstwhile success) of investing in abstractions. In these adverse market conditions, we believe that it's prudent to get back to the basics.

Accordingly, factors such as positive cash flow, positive real returns (post-inflation), relatively low valuation multiples, returns to shareholders via capital initiatives and strong market leadership positions we view favourably. 

Which asset classes will be resilient?

We can use history as a guide in comparing similar environments in the past with the present day. The stagflationary environment in the 1970s is a reasonable comparable in some ways to the present day, with numerous 'oil shocks' experienced analogous to the global 'energy molecule' crisis being experienced today.

The sector that experienced the best returns over this decade was the energy sector, with the worst returns coming from the technology sector. Value and small-cap assets performed best throughout the decade, with growth assets and government bonds providing the worst relative returns.

Accordingly, we believe the most favour sectors to be going forward to be:

• Energy - unpopular and cheap due to ESG mandates with material operational leverage to higher energy prices going forward
• Agriculture - defensive, real asset class, albeit with typically lower returns
• Tangible goods and commodity producers - will benefit from the trend towards greater localisation and the unwinding of globalisation

It's important to observe that recent inflation has been driven by shortages and supply chain disruptions. Rising rates are unlikely to control inflation in the short term. Inflation has been labelled the 'silent tax' as it essentially measures the fall in a currency's purchasing power. It reduces the standard of living for the majority, which has the knock-on effect of reducing economic activity and increasing the probability of a recession.

Accordingly, it's imperative to invest with those stewards of capital that can outperform the rate of inflation earning a real rate of return, thereby preserving one's purchasing power and quality of life. Passive market exposure may not provide this however, we firmly believe that the appropriate actively managed funds in combination with other uncorrelated assets provide a higher probability of preserving an investor's wealth in real terms.

Since August 2018, the ASX200 Total Return index has compounded at an annualised rate of 8.79% per annum. Over the same timeframe, as an example, the Datt Capital Absolute Return Fund has doubled the index return: achieving 17.73% per annum (past performance is no guarantee of future performance) at lower relative risk, despite some of the most turbulent markets in living memory.

This demonstrates the importance and value of adding high performing active managers; with the ability to invest within the sectors experiencing tailwinds to a diversified portfolio as a potential hedge against inflation.

Author: Emanuel Datt

June 2022

Abbott Nutrition, which controls 48% of the US$2.1 billion US infant-formula market, in February recalled three product categories and closed a plant in Michigan after four babies who had consumed its powdered milk became sick with life-threatening bacterial infections even though there was no proven link.[1] By May, the US had a shortage of baby food - as in bare shelves (a nationwide out-of-stock rate of 43%),[2] panic buying, parents resorting to dangerous homemade remedies,[3] and infants hospitalised because not even doctors could obtain the specialised formula they needed.[4]

That such a wealthy country has a shortage of baby food symbolises how the world is dogged by scarcity. The global manufacture and distribution of basic, essential and technological goods is muddled. The world's food supply can't get to everywhere it's needed. Countries reliant on imported energy are vulnerable. At an industry level, automobile production is hampered by a lack of parts. Industrial revenue has dropped due to a backlog of orders. Restaurant margins are under pressure. Retail is lacking stock and staff. Building is delayed. Tech companies lack the essential components. Some niche industries such as 'fast fashion' (online-clothing sales driven by Instagram influencers) face collapse.    

Supply is snarled for (at least) eight reasons, and the damage is magnified because many are occurring at once. The first and underlying problem is that supply lines are too precarious. One hiccup in these over-complicated, sprawling and self-organising production networks causes a shortage. Outsourcing and specialisation taken to the nth degree have meant that multinationals don't even know who are their suppliers. About 70% of 300 companies surveyed by India-based Resilinc Solutions in 2020 couldn't identify their suppliers in China just after covid-19 became apparent.[5] Adding to the mess is that an overreliance on China, just-in-time production, minimal inventory practices and high industry concentration reduce the margin of error for supplies. Even before the crisis in the four-producer US infant-formula market was apparent, a US Department of Agriculture report in February listed tackling industry concentration as "priority one" of six to strengthen the US food supply.[6]

The second reason for shortages is climate change. Floods in China, heat waves in India and droughts in the US - more locally, heavy rain and not much sunshine in Queensland - mean crops are failing to enjoy the temperate weather needed for good harvests. Climate-change-related blows to food in storage (electricity failures that lead to a loss of cold storage) and damage to transport infrastructure "could significantly decrease availability and increase the cost of 22 highly perishable, nutritious foods such as fruits, vegetables, fish, meat, and dairy," the UN Intergovernmental Panel on Climate Change warned in March.[7] The other side to climate change is that its solutions are naturally hostile to investment in fossil-fuel production, and oil, gas and coal shortages loom when there is no foolproof replacement.

The third reason is a scarcity of labour. Low unemployment means companies are struggling to find enough qualified workers. So firms are forced to cut production. In the US, for every two job openings in March, there was only one unemployed person.[8] A lack of workers has added to shortages when it has manifested as a disruption to transport. Think not enough truck drivers.

The fourth reason is 'chipageddon', the term for a lack of microchips over the past two years because demand has outstripped global production capacity. Since a piece of silicon that contains nanoscopic electronic circuits component powers so many goods these days, the result is a shortage of everything from lightbulbs to cars to medical devices.[9]

A fifth reason for shortages is the tension between China and the West that is impeding trade and investment - Intel CEO Pat Gelsinger in 2021 said Beijing-Washington strains made it hard for chipmakers to expand production.[10] As well as deterring investment, the politically driven impediments include export bans, tariffs and import quotas. 

Another reason for the shortages (especially of microchips) is covid-19. Lockdowns and logistic disruptions especially at ports hammered production and jammed container deliveries by ship and truck at a time when government stimulus boosted demand for goods. Freight costs rose so much companies such as Costco, Home Depot, Ikea and Walmart found it cheaper and more reliable to hire ships. China's 'zero-covid' response this year to the Omicron strain is bound to extend 'Made in China' shortages.

The seventh reason is Russia's attack on Ukraine, two countries that account for 12.4% of calories traded, much of it to poor countries.[11] Western sanctions to punish Moscow are denying European businesses the Russian oil and gas they need to operate. Blackouts are possible, as are factory closures.[12] The sanctions are blocking the export of the fertiliser that helps farmers worldwide maximise crop output. In Ukraine, the fighting, Russian plundering and sabotage of rural production and Moscow's siege of Black Sea ports are blocking the export of grain staples.[13] Many warn of a global famine. The head of the UN's World Food Programme in May cautioned that hundreds of millions of people are "marching to starvation" in what could rank among the worst humanitarian disasters since World War II.

The last reason given here for the shortages is fear of shortages. The panic-driven hoarding that emptied supermarkets of basic goods at the start of the covid-19 pandemic is reappearing in other forms. The US-based International Food Policy Research Institute said by early April at least 16 countries had banned export amounting to 17% of traded calories to stockpile local supplies. The list includes India outlawing wheat exports and Malaysia forbidding poultry trade at a time when 80% of the world lives in countries that are net importers of food.[14]

The shortages behind delays, waste, forgone production and lost sales come with notable macroeconomic and political consequences. Economic growth will be lower than otherwise and inflation higher because scarcity makes prices much more sensitive to demand. Even if demand is steady, interruptions to the supply of goods result in the 'supply-side' inflation that central banks can do little to subdue. At the same time, high demand for labour leads to wages-price spirals that enshrine inflation, though at least central banks can calm an overheated labour market with rate increases. But the combination of reduced demand to subdue wages inflation, forgone production from supply shortages and hard-to-suppress supply-side inflation is stagflation.

The political consequences of shortages and inflation are the protests directed at authorities that litter history, most prominently when hunger is driving the anger. Sri Lanka's deadly political turmoil and economic collapse is the latest example; all the more tragic because a government decision in 2021 to ban fertilisers and pesticides created a famine.[15]

In a world of shortages, how can businesses and policymakers help? Governments are pondering sending in navies to get produce through the Black Sea. So far, too risky. More mundane decisions include that officials can reduce the amount of grain used in biofuels to help the world can feed itself.[16] Policymakers could prioritise fomenting another 'Green Revolution' by encouraging the adoption of 'agritech' to boost crop yields.[17] Business options include proper mapping of their suppliers, 'reshoring' and diversifying sources. Firms can use shorter shipping routes, undertake more frequent stock updates, pre-order and manage inventory levels more prudently. Truth is there are no quick solutions. The age of scarcity will pass but not for a while and not before it has shaken the world.

To be sure, the 'everything shortage' is an exaggeration. Many would say that capitalism responded brilliantly to a surge in demand for medical and durable goods during the pandemic.[18] Policymakers are exaggerating the inflationary effects of shortages to shift blame from the excess demand they created with their fiscal and monetary stimulus during the pandemic. The worst appears over for shipping disruptions - peak dislocation seems to have been late last year. Same too for chip production, according to car makers,[19] while US retailers are complaining of too much inventory. But that's due to a drop in demand. Governments are taking action. Washington in June used emergency powers to solve a logjam of imports of modules and components for the solar-power industry.[20] But businesses immediately said this action would impede their efforts to boost domestic production.[21]

Whatever the best way to ensure the US advances solar power, governments have the lesser role in solving today's shortages because their conventional economic tools are of little use. By and large, scarcity is a problem that business needs to solve. Babies depend on it.

Organic failure

In 2019, Sri Lankan President Gotabaya Rajapaksa unveiled "Vistas of prosperity and splendour," his vision for the island nation that had long been self-sufficient in food. Among many goals was one to "promote and popularise organic agriculture during the next 10 years".[22] In April 2021, Rajapaksa embarked on the world's greatest organic farming experiment when he suddenly banned the importation of chemical fertiliser and pesticides and ordered farmers to go organic without any help from imported organic fertiliser.[23]

The results are tragic. Within six months, Sri Lankan rice production plunged 20% and rice prices soared 50%. The government was forced to import rice and ease the ban on chemicals.[24] But coupled with the pandemic's blow to tourism, the loss of tea exports to Russia and rising oil import prices, the U-turn wasn't enough. Sri Lanka has collapsed economically and politically. (Rajapaksa was ousted in May.)

To some extent, Rajapaksa's shift to organic farming was a reversal of the great advances in farming in the 1960s when emerging countries adopted modern techniques.[25] Led by US scientist Norman Borlaug who won the Nobel Prize for Peace in 1970 for sparking the Green Revolution, crop yields surged, often doubled, across developing countries, especially the Indian subcontinent, thanks to the introduction of "higher-yielding short-strawed, disease-resistant wheat" that demanded the use of fertilisers and pesticides.[26]

Organic farming produces up to 50% less food per hectare than conventional farming because it requires farmers to rotate soil out of production for pasture, fallow or cover crops.^[27] Amid warnings of a global famine due to a fertiliser shortage and adverse weather, the world needs another technologically driven Green Revolution.

Adversity spurs innovation.[28] If babies and others are in want, watch for technological advances in farming to ensure the world can feed itself again.

By Michael Collins, Investment Specialist

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The S&P declined 8.8% in April and by late May was down over 12% ytd. The Nasdaq was down 22% ytd. and Bitcoin down 38% ytd. The 10 yr Treasury finished at 2.9%; the yield has doubled in 18 mos.

Concern is growing that the US Fed may be making serious policy mistakes by being weak on fighting inflation and focusing on supporting equity prices. The Fed may have to choose between two evils, both with significant negative effects. The respected economist Mr. El Erian has been vocal on this issue: "I think the Fed is going to have to decide between two policy mistakes ...". Rising rates won't help an economy already showing signs of weakness: new home sales were down 16.6% and business owners are increasingly pessimistic.

The geo-political backdrop worsens as Russia and China appear to be allying more closely both economically and militarily. China has chartered 10 extra tankers in May alone to transport Russian oil and the two countries did a joint exercise flying strategic bombers over the Sea of Japan during President Biden's recent visit to Tokyo. Wheat shortages in Egypt (80% of her wheat comes from Ukraine and Russia) recently caused a riot in the streets as the subsidized bakery had no bread.

The need for diversification in portfolios is greater now than ever and Life Settlements can provide the required stable, non-correlated returns even in this uncertain world.

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Bennelong's Dave Whitby speaks with Greg Goodsell, 4D's Global Equity Strategist, about 4D's unique country review process - an integral part of the business's investment process - and its impact on the portfolio.

• 0:32 - How Russia stacks up in 4D's country review process 
• 2:06 - The origins and purpose of the country review process
• 3:11 - Red, yellow and green: the four-step process behind 4D's traffic light system (and the subsequent implications)
• 5:45 - Examples of when the process has unexpectedly changed a country's rating
• 8:01 - Global recovery, growth, and opportunities in an inflationary environment

For more detail on our country review process, you can read our Global Matters article: Why country risk matters

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Bennelong's Dave Whitby speaks with Greg Goodsell, 4D's Global Equity Strategist, about 4D's unique country review process - an integral part of the business's investment process - and its impact on the portfolio.

• 0:32 - How Russia stacks up in 4D's country review process 
• 2:06 - The origins and purpose of the country review process
• 3:11 - Red, yellow and green: the four-step process behind 4D's traffic light system (and the subsequent implications)
• 5:45 - Examples of when the process has unexpectedly changed a country's rating
• 8:01 - Global recovery, growth, and opportunities in an inflationary environment

For more detail on our country review process, you can read our Global Matters article: Why country risk matters

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Has the RBA hit panic mode?

With rates on the rise, higher inflation and wages below expectation, has Australia's central bank panicked by hiking rates by 50bps, the largest monthly move in over 20 years? The RBA's charter is to ensure the economic prosperity and welfare of the Australian people, which increasingly appears to be being overlooked in favour of an inflation target that isn't easily achievable without causing recession.

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Global stocks struggled early in 2022 because investors were concerned about faster inflation, which has risen to its highest in four decades in the US, a record high in the eurozone and highest in three decades in the UK. Long-term bond yields are climbing (bond prices are falling) because inflation reduces the value of future bond payments. Short-term bond yields are rising as central banks have increased, or are poised to lift, cash rates and terminate, even reverse, their asset-buying programs that supressed interest rates. In times of accelerating inflation and turbulent share markets, investors might find that holding global listed infrastructure securities is one way to help protect a portfolio against inflation.

Inflation and asset values

Inflation tends to hurt stocks in two ways. One is that inflation reduces the present value of future cash flows, a key determinant of share prices. The other way a sustained increase in inflation undermines stock valuations is that rising input costs and higher borrowing costs reduce profits - unless a business has the pricing power to boost the price of its goods or services to compensate. The lower the expected profits, the less people are willing to pay for shares.

Inflation and infrastructure assets

As inflation accelerates worldwide, many investors are turning to the few companies that are renowned for their inflation protection. Among these are infrastructure companies. The discussion here assumes companies defined as infrastructure meet two criteria. First, the company must own or operate assets that behave like monopolies. Second, the services provided by the company must be essential for a community to function efficiently. Such companies have predictable cash flows that make them attractive defensive assets.

The main sectors within infrastructure are utilities, toll roads, airports, railroads, energy infrastructure, communications (mobile phone and broadcast towers). Each sector exhibits diverse investment characteristics and reacts differently to faster inflation, as explained below. The key thing to note though is most of these businesses are protected from inflation, which should help support their share prices if inflation becomes entrenched.

Utilities

Utilities include water utilities, electricity transmission (high-voltage power lines) and electricity distribution (urban power lines) and gas transmission and distribution. In most countries, utilities are monopolies. Consequently, government regulators control the prices these entities charge and adjust rates to provide utilities with an appropriate return on invested capital. This process requires regulators to take into account the changes to borrowing, construction and operating costs and changes in the value of the assets that utilities own.

While all the regulatory regimes that Magellan considers to be investment-grade feature mechanisms that allow for the recovery of rising utility input and financing costs, the intricacies of different regulatory regimes affect the timeliness of that recovery. Regulatory systems that strike return allowances in real terms, escalate revenues with inflation, and index debt costs to market yields, including those in Australia and the UK, provide the most timely protection against inflation. By contrast, regulatory systems such as those in Spain and the US that strike return and cost allowances in nominal terms protect against inflation with a modest lag.

Toll roads

The typical business model for a toll road is that a government signs a contract that allows a toll-road operator to collect tolls for a set time and increase those tolls on a regular basis in a defined way. At the end of this contract, the road is returned to government ownership in a good state of repair.

In most countries, the toll road is often not the only road route available to motorists. Consequently, the toll road is not a monopoly. The toll road, however, generally exists because alternative routes are much slower. The opening of a toll road inevitably reduces traffic on the free alternative. But over time, the free alternative can become congested more quickly than the toll road. As that occurs, the toll road behaves more like a monopoly and gives toll roads increased pricing power. However, toll price changes are generally pre-defined under a contract. Table 1 shows a cross-section of how toll prices are set in a range of contracts.

Sources: Company releases, Magellan

As can be seen, the pricing mechanism for many of these toll roads picks up any increases in inflation with minimal lag. Moreover, due to their strong pricing power, toll roads can expect that there will be minimal, if any, loss in traffic when tolls increase so revenues will fully recover the inflationary hit.

Additionally, one of the key characteristics of toll roads that insulates them from inflationary impacts is their high profit margins. Table 2 shows the gross profit margins of a selection of international toll roads. The average margin of 75% from the sample is substantially above other industrial companies.

Source: Company releases, Magellan

The other key area where inflation can hurt profits is by increasing the cost of capital expenditure companies need to undertake. With most toll roads, however, the capital expenditure on operating roads is minimal and generally limited to resurfacing and replacing crash barriers, etc.

Airports

When looking at airports and inflation, it's best to consider airports as two businesses. The 'airside' operations primarily involve managing the runways and taxiways of the airport. Airside revenue is generated by a charge levied per passenger or a charge levied on the weight of the plane, or a combination. In most jurisdictions, the onus is on the airport to negotiate appropriate charges with the airlines. This side of the operation therefore behaves much like a regulated utility.

The other business is the 'landside' operation that involves the remainder of the airport. These operations cover three primary areas: retail, car parking and property development. In most airports, the airport owner does not run the retail outlets. Instead, the owner acts as the lessor and receives a guaranteed minimum rental that is normally inflation-linked plus a share of sales. These revenues are therefore protected from a jump in inflation.

The parking operations at the airport generally behave like a monopoly although there is some substitution threat; that is, passengers can use taxis instead of driving. As such, airports have significant ability to increase prices in response to higher inflation. In regard to costs, airport profit margins exhibit much greater variability than toll roads, as evident from Table 3.

Source: Company releases, Magellan

Efficient airports such as those in Auckland and Sydney are more insulated from faster inflation than those (typically European) airports that are struggling to reduce the workforces that were in place when they were privatised. (Even these less-efficient airports still exhibit higher margins than the average industrial company.)

Finally, airports also have the highest capital expenditure requirements of any of the transport infrastructure subsectors. Airside capital expenditure includes widening and extending runways and taxiways. It is generally only undertaken after consultation and agreement with the airlines and regulatory authorities. Over time, airside charges will rise to recover these costs.

Landside capital expenditure relates to increasing the retail, parking and general property leasing facilities. Higher inflation may change the financial viability of such capital expenditure. But airports, having an unregulated monopoly in these areas, can increase prices to compensate for inflation. Consequently, inflation is unlikely to hurt the value of an airport asset.

Railroads (Class 1 freight rail)

The railroads that meet Magellan's definition of infrastructure are primarily North American Class 1 railroads. These railroads typically have no regulator-approved capability to pass through inflation. Instead, their respective national regulators provide for lighter economic regulation using a broad 'revenue adequacy' standard. Thus, regulations have allowed railroad operators to charge rates that support prudent capital outlays, assure the repayment of a reasonable level of debt, permit the raising of needed equity capital, and cover the effects of inflation whilst attempting to maintain sufficient levels of market-based competition. 

Arguably, this framework has provided railroads with greater discretion around the rates they charge customers and thus, the ability to more than account for inflation. Chart 1 shows how North American railroads have increased rates at levels well ahead of inflation over the past 20 years. 

Source: US Bureau of Labor Statistics; Federal Reserve and AAR

This isn't to suggest that regulation provides the key source of inflation protection for North American railroads. Rather, we think the rails generate most of their inflation protection from pricing power (which is derived from the lack of alternatives and the regional duopolistic regional markets) and operating efficiencies.

Energy infrastructure

The energy-infrastructure companies that meet our definition of infrastructure have dominant market positions and real pricing power, which is reflected in long-term, typically inflation-linked, take-or-pay contracts or regulated returns. 

Given the long-term nature of energy infrastructure contracts, pipeline and storage operators typically use pre-agreed price increases to protect real revenues and hedge against rising costs. Given the strategic and monopolistic nature of some assets such as transmission pipelines, some of these pipelines are regulated. Australia, for instance, has a mix of regulated and unregulated gas pipelines. In Canada, tariffs are negotiated within a regulatory framework. In the US, the regulator sets pipeline rates to allow the operator to earn a fair return on their invested capital. All methods protect these companies from inflation.

Tank-storage providers that meet our definition of infrastructure need to have terminals in favourable locations and typically sell capacity, predominantly under long-term contracts, with no exposure to movements in commodity prices.  Long-term storage contracts are usually indexed in a similar way to pipeline contracts. Netherlands-based storage provider Royal Vopak has long-term contracts (longer than one year) linked to the CPI of the country where the storage takes place (with annual indexation), while the bulk of costs are in the local currency of those countries, which provides a strong hedge against inflation

Communications infrastructure 

Communications infrastructure, as defined by Magellan, is comprised of independently owned communication sites designed to host wireless communication equipment, primarily towers. Although these sites are mainly used by wireless carriers, they may host equipment for television, radio and public-safety networks.

Despite the complexities of the technology that underpins wireless communication networks, the business model for these tower companies is simple. These companies generate most of their revenue through leasing tower space to wireless carriers such as mobile-service providers that need a place to install equipment. In return for providing this space, the tower company receives a lease or services agreement that provides a long-term and reliable income stream. The terms of these contracts are usually favourable for tower companies because data demand is strong and competition is low. Thus, leases are long term and revenue increases are priced into the contract.

Source: Magellan

Even so, we consider some, primarily US-based, communication towers to be relatively more sensitive to changes in inflation than other infrastructure sectors. This is due to communication towers in the US typically having limited inflation protection on the revenue side in the near term. In sum, we consider their protection to be partial.

The second order effect of higher interest rates

The traditional policy approach from central banks in response to higher inflation is to raise nominal interest rates, which has potentially two effects on our investment universe: The impact of changes in interest rates on the underlying financial performance of the businesses in which we invest; and the impact on the valuation of those businesses. 

As discussed above, regulated utilities can recover the cost tied to a rise in inflation through the periodic regulatory process. This generally includes the costs of servicing higher interest rates on their debt, thus exposure to interest rates will be limited to the length of time between reset periods, albeit in practice those utilities that are exposed to this kind of risk tend to hedge it by issuing fixed rate debt with a term that aligns with the regulatory period.

Overall, the past decade has witnessed a significant lengthening in the duration of the debt portfolio for the majority of infrastructure and utilities businesses. Many of these companies are well protected from higher rates because they have taken advantage of the low interest rates of recent years to lock in cheap, fixed rate debt for long periods. Ultimately, we are confident that any shifts in interest rates will not hamper the financial performance of the companies in the portfolio for the foreseeable future.

In terms of valuation, an increase in interest rates can be expected to lead to a higher cost of debt, and an increase in the rate at which investors value future earnings (the higher this 'discount rate', the less investors are willing to pay for future income streams). While our forecasts and valuations take these factors into account, the history of financial markets leads us to expect increasing uncertainty if rates rise or look like rising. Companies that are regarded as 'defensive' are often shunned when interest rates rise as investors prefer higher-growth sectors. However, it is our experience that provided businesses have solid fundamentals, their stock prices over the longer term will reflect their underlying earnings.

In recent history, there have been three occasions where we have seen a spike in US 10-year yields of about 0.9%. At face value, these three increases in prevailing interest rates appear to have led to declines in the market value of listed infrastructure. However, if we look over the combined period then a different picture emerges.  The following chart shows the performance of the Magellan Infrastructure Fund from June 2012 to December 2019. 

The chart shows that the hit from higher interest rates was short term. Once the interest-rate rises were digested and it was established that the outlooks for infrastructure businesses were largely unaffected then the share prices recovered. 

Conclusion

Infrastructure remains well placed in an environment of increasing inflation due to its inflation-linked revenues, low operating costs and consequent high margins, with the second order impact of higher interest rates being muted by the lengthening of company debt portfolios over the past decade. These characteristics offer investors a haven when inflation is at decade highs around the world.

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Is the RBA risking a recession to solve inflation?

The RBA hikes rates by 25bps, with more set to come in 2022 as Australia's central bank attempts to keep a grip on inflation.

With oil and commodity prices set to continue to be at elevated levels due to Russia's war with Ukraine, could a series of rapid rate hikes rates push the Australian economy into recession??

Tune in to hear Darren and Chris discuss this in episode 27 of The Rate Debate.

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On Wednesday, April 27, Laureola Advisors shared an update on Q1 2022. 

Request for the recording now!

ABOUT LAUREOLA ADVISORS
Laureola Advisors was founded with the belief that investors deserve access to the unique benefits of Life Settlements, with the advantages of a specialist and focused asset manager. 

The best feature of the asset class is the genuine non-correlation with stocks, bonds, real estate, or hedge funds. Life Settlement investors will make money when others can't.

Like many asset classes, Life Settlements provides experienced and competent boutique managers like Laureola with significant advantages over larger institutional players.  In Life Settlements, the boutique manager can identify and close more opportunities in a cost effective manner, can move quickly when necessary, and can instantly adapt when opportunities dry up in one segment but appear in another. Larger investors are restricted not only by their size and natural inertia, but by self-imposed rules and criteria, which are typically designed by committees.

The Laureola Advisors team has transacted over $1 billion (US dollars) in face value of life insurance policies.

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In this episode, CIO Steve Johnson is joined by whisky-naysayer (and Senior Analyst) Chloe Stokes to discuss the bid for Twitter, social media monetisation, and control in volatile markets. Chloe also shares her experience as a younger investor and reveals the stocks (and burgers) currently on her watchlist.  

"As shareholders, we can't help but be disappointed. We bought [Twitter] because we thought the platform had a lot of potential," Chloe tells Steve. "It's obvious that we think it's worth more than the bid, because we held it through periods where it was trading much higher and still thought it was worth more than those higher prices. So, we are definitely not happy from a price perspective, but on the other hand, we can't stop talking about it."

Timestamps

02.30 Start
07.15 Is Twitter offer the right price?
11.12 What is causing concern in the social media ecosytem?
19.02 Meta price in distress
26.26 Stock to watch
32.00: Whisky tasting - Suntory Toki

Key Portfolio Construction Trade-Offs

Dr. Laura Ryan and Tamar Hamlyn are joined by Dr. Nigel Wilkin-Smith to discuss the importance of currency management for AUD investors, along with the backdrop created by the regulatory environment in superannuation, particularly the YFYS performance test.

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Fingertip readers and facial recognition used to be something we only saw in Hollywood movies, now they are staples in our economy. The way we purchase has dramatically adjusted to the new normal.

Covid-19 has created an unprecedented global change in how we pay for things. There has been a profound and permanent change in behaviour in Australia and many parts of the world.

Payment apps are easy to use, they offer improved security and the work from home offers balance, since Covid means more time to browse from home via laptops and phones.

 

Insync's Portfolio Manager, John Lobb tells us more on the The Rise of the Contactless Economy Megatrend: