An inflection point for Aussie shares
In recent months, much has been said on growth versus value, and tech stocks versus cyclical stocks. But focusing on these labels misses the true underlying driver of these trends: duration.
But what exactly is duration? A ‘long duration’ asset simply means one where a large portion of the returns are expected to happen in the distant future. These stocks are highly sensitive to changes in long-term interest rates, and they've taken a pounding so far in 2021.
“Very small moves in interest rates can have outsized impacts on valuations. Our concern is that a steepening yield curve could cause these businesses to be repriced quite quickly,” explains David Moberley from Paradice Investment Management.
Long-term interest rates are on the rise, and according to some experts, this trend is likely to stick around. With many of the ASX's winners in recent years firmly from the 'long duration' category, and many of the underperformers in the 'short duration' category, this could be an inflection point for Australian equities.
In this episode of The Rules of Investing podcast, we discuss how his experience at a start-up helped him as an analyst, why Australian gas stocks are well placed for further appreciation, and we hear why CSL's collection problems are likely to just be transitory.
Time stamps:
- 1:50 - David’s history in a tech start-up and the applicable lessons to his job today
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4:50 – Buy the rumour, sell the fact
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8:05 - The drivers behind the success of commodities
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13:06 – Santos thesis: good company management versus long-run outlook for fossil fuels
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17:00 – The short selling landscape today
- 19:36 – Rationale behind a suppressed exposure to tech and how to keep an eye on opportunity
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25:01 – Is CSL offering value at today’s prices?
- 32:45 – David answers our three favourite questions.
Discussed in the show:
David's recommended reading for new investors:
- The Intelligent Investor - Benjamin Graham. Available on Amazon or Booktopia.
- One up on Wall Street - Peter Lynch. Available on Amazon or Booktopia.
- Common Stocks and Uncommon Profits - Philip Fisher. Available on Amazon or Booktopia.
- The Most Important Thing - Howard Marks. Available on Amazon or Booktopia.
- Margin of Safety - Seth Klarman. No longer in print.
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