AI, Soul Patts, the thirst for capital: 6 highlights from Livewire Live 2024

Livewire 2024 takes on a different flavour – AI is all the rage right now, the ASX 200 is trading at all-time highs and the Federal Reserve is poised to cut interest rates for the first time since March 2020.

The event showcases over 15 of Australia's most celebrated investors, tackling the hottest topics in today's investment landscape. For those who couldn’t attend or want a comprehensive recap, look no further – I’ve compiled the event’s key insights and takeaways, and you can find all the nuggets below.

Apollo Global Management: Megatrends Need Cash

Apollo Global Management is one of the world's largest alternative investment management firms, with approximately US$650 billion in assets under management.

Digitisation and decarbonisation stand as the twin pillars of 21st-century megatrends, each poised for extraordinary growth trajectories. However, what often escapes notice is the monumental capital investment required to transform these ambitious visions into tangible realities.

“We are in a time when companies are seeing an unprecedented need for capital. The digital transformation going across almost every industry," said Apollo Global's Co-President Scott Kleinman.

"Companies have to spend levels of capital in a relatively short-to-medium period of time … they need access to all forms of capital.”

Investment Theme

5 investment themes attracting this $1 trillion firm's attention

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Seismic Shifts Are Reshaping Markets

This session explored five seismic shifts currently affecting markets and revealed some of the investment opportunities they are creating.

While topics ranged from Australia's aging population to private credit, my favourite topic was of course, about the market.

The ASX 200 has reached all-time highs, propelled by banks, even as materials and energy sectors languish in a bear market. Amid recession fears calling for caution, Fidelity's James Abela suggests focusing on the middle ground between growth/momentum and bear market sectors:

"Consumer property services, industrial services, any kind of services is pretty stable," he said.

The materials sector faces headwinds, with iron ore prices down 33% year-to-date. Recent Chinese economic data only reinforces the downward trajectory. However, a contrarian view emerges from Wilson Asset Management's Matthew Haupt:

"The clip of social financing and local government in June this year was huge, acting as a forward indicator for a strong December quarter," Haupt notes. "Q4 potentially looks quite good, so that may flow to the hard data ... We've got that trade on ... the BHPs and Rio Tinto's of the world."

The First ASX Dividend Aristocrat

Soul Patts (ASX: SOL) is on the cusp of making history as Australia's first dividend aristocrat if it grows its dividend for just one more year. So how is one of Australia's largest listed conglomerates allocating and protecting its capital? Here are some of my favourite comments from CEO Todd Barlow.

• "We feel very good about the opportunities in credit right now. And it's giving us downside protection, but a greater end-market return. So that just seems like a good way to invest to preserve capital, protect your downside, and get something better than we could be experiencing in the equities market."
• "We put $200 million into uranium assets last year. That's a thematic that we feel very strongly about, and actually just the energy thematic generally. We feel very positive about the long-term demand for energy from all sources."
• "When I look at the portfolio, there is actually pretty good international flavour to it." (Referring ASX-listed holdings with international exposure such as Brickworks, Tuas and New Hope)
• "We've got 60,000 shareholders, but you can invest through us in the same way that any family office would invest, and you get the benefit that we get from scale."

How Big is the AI Pie?

The AI panel was unsurprisingly bullish but the thesis broadened towards the potential to improve quite literally every other industry.

Contrary to popular belief, the valuations of megacap tech stocks aren't exorbitant. The likes of Nvidia, Microsoft, Alphabet and more are trading at price-to-earnings multiples of around 20-30. While undeniably expensive, these valuations aren't in bubble territory. What makes these megacaps compelling is their built-in optionality to explore AI opportunities.

When asked about ex-mega cap opportunities, the panellists named the following: 

• Antipode's Jacob Mitchell – Capital One Financial, the opportunity for companies on the fringe of the mega cap, Oracle, Workday
• Munro Partners' Nick Griffin: Companies that benefit from a device upgrade cycle (e.g. Apple is still working on it), TSMC
• Tribeca's Jun Bei Liu: Pro Medicus, NextDC or Goodman Group, Infratil, JB Hi-Fi, utilities

5 Shocking Predictions

Investing success often comes from stepping away from the crowd. However, herd mentality is powerful and even the savviest investors aren't immune.

The most hard hitting prediction was when Schroders' Kellie Wood called out a recession that will cause a US default, triggering the mother of all financial crises.

"The mother of all crises, is when we see a deep recession in the U.S. that triggers a U.S. default. This is likely to sink the global economy. And in all these possible scenarios, it's an environment where we see interest rates rise, borrowing costs moving up," she said.

"Only inflationary bonds, commodities, gold, even real assets, asset classes like real estate or infrastructure, that will hold their value better in a downturn."

While the most intriguing prediction was from QVG's Josh Clark. Simply put - Thematic investing will perpetually underperform and you're better off investing in a benchmark like S&P/ASX 200. 

"Things like the energy transition, battery materials would also be familiar to you, albeit investor interests are somewhat waned. And then you've got these mini-manias, things like milk and marijuana," said Clark.

To his point, the ASX-listed lithium complex is in the midst of a steep drawdown, infant formula stocks like A2 Milk (ASX: A2M) are 70% off 2020 highs and marijuana stocks are mostly trading at a fraction of a cent. 

Macro

5 shocking predictions for 2025 and beyond

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The Good, The Bad, The Ugly

Success in investing is not just about picking winners, it’s also about avoiding or even profiting from sectors and stocks that look troubled. My wire tomorrow will cover the good, the bad and the ugly. But for now, let's take a look at the bull side:

Dushko Bajic from First Sentier Investments delved into the more expensive pockets of the market. His stock picks included:

• Pro Medicus (ASX: PME)
• Wisetech (ASX: WTC)
• Hub24 (ASX: HUB)
• Siteminder (ASX: SDR)

Eley Griffiths Group's Ben Griffiths highlighted a key strength emerging from the August reporting season: the impressive ability of small-to-mid-cap companies to effectively manage costs. And called out Breville (ASX: BRG) as his top pick.

"The most recent reporting season highlighted some outstanding cost management trends, and that followed up from the February results season where we saw again, brilliant cost management was on display," he said.

While these insights represent some of the nuggets from Livewire Live 2024, they're just the tip of the iceberg. Stay tuned for more comprehensive coverage and exclusive content set to be released over the next two weeks.