This year’s top 10 stories included a peek into AustralianSuper’s international equities build out in London, AMP’s move to slash employee benefits, and plenty of hard-hitting analysis of the issues that matter in institutional investment. But the real story is how readers helped shape all of that coverage.
Orbis’ Stuart Place is riding from Melbourne to the Moon and Back to fund a treatment for the “monster of a disease” that his youngest son was born with. The investment industry is rallying behind him.
Growth stocks go from overhyped to oversold
Hyperion believes that the sell-off in growth stocks in recent months has become indiscriminate, with the market failing to differentiate between trend setters and trend followers.
The last few years has seen the ascendancy of high growth tech stocks in US and global markets, to the extent that many bears now believe it’s a bubble to rival that which preceded the Tech Wreck. But if a rising tide has lifted all boats, choppy waters are sinking them just the same.
“We think the sell-offs in the quality structural growth names is well and truly overdone, and has shot to the downside,” said Jason Orthman, Hyperion deputy CIO. “That being said, there’s a number of growth names that will take a while to come back and might not actually come back.”
“There’s a couple of elements to it; the market needs to differentiate between dominant market leaders and average businesses, and when you have these panic periods you have contagion… We can see that Tesla is absolutely dominant, and you can’t class or group that with a Peloton or a Rivian, which are still early days in terms of scaling-up and proving the business model and their market leadership. They might get there one day, but they’re not there today.”
Hyperion noted a “soft rotation” out of growth stocks and into more traditional value stocks in the closing months of 2020 – an environment that’s been “pretty hostile” for Hyperion, with several of its funds impacted. Since the start of that soft-rotation, nearly 60 per cent of the Nasdaq has halved; more than 2000 companies have come 50 per cent off the highs they achieved through 2021. Hyperion has since lowered its cash levels from nine per cent to two per cent, and is reweighting its opportunities.
“Over the last three months we’ve seen long-duration, high-growth companies underperform low-duration, low-growth companies by 40 per cent – an unprecedented delta,” Orthman said. “We believe that’s been non-fundamental – negative feedback loops – and we’re trying to take advantage of that… These negative feedback loops and momentum switches out of some of these leaders have been indiscriminate and have gone way too far.”
Hyperion also disagrees with the growing consensus outlook of continued high inflation. While the impact of Covid-19 variants has prolonged the period of high inflation, it’s “unlikely to be permanent”; the impacts of “technology innovation and disruption” will instead prove deflationary, and stagflation is “very unlikely in the long term” because of low aggregate demand growth – a trend set to continue because of the global aging population, and rising debt levels and wealth inequality.
“High inflation numbers are likely to continue for the next few months, but we think they should start to decline in the second half of this calendar year,” said Mark Arnold, Hyperion managing director. “Inflation is normally caused by demand and supply imbalances and high inflation can become entrenched if enough people believe it will remain high. The longer inflation is elevated the greater the probability that it will remain elevated, because expectations for inflation will increase.”
“The good news is that long-term inflationary expectations remain relatively low. The University of Michigan consumer survey is still indicating long-term inflationary expectations of around three per cent.”
