From the AFR:
It says a lot about Australia’s supply of “quality” companies that there is not one local company in the $US7.2 billion ($10.15 billion) quality global strategy run by GMO, the Boston-based fund manager founded by Jeremy Grantham, Dick Mayo and Eijk van Otterloo in 1977.
…Australian banks and resources don’t make the grade because they don’t meet GMO’s definition of quality, which can be found in the product disclosure statement and information memorandum released with the launch in Australia of the GMO Quality Trust.
Hancock says the problem with banks is they have “unpleasant tendency to give a market like returns most of the time and they blow up on you occasionally when there’s a crisis”.
…”If you think of some of the commodity companies and energy companies, that have created really high dividend yields, that’s not a yield you can count on being there 10 years from now and when you’re talking about discounting the fair value of the equity that matters,” he says.
That is a takedown that goes directly to our own investment outlook. It can and should be extrapolated to the entire economy:
- Protected and inflated banks running into long-cycle credit headwinds as interest rates plunge to, and below, zero, rendering payouts very unreliable.
- Protected and inflated extractive firms that are in exactly the same position via-a-vis the Chinese credit long cycle and its slow but inevitable grind into the middle-income trap of stalled growth.
Given the resulting lack of competitiveness, domestic demand can only be supported by various forms of fiscal policy, for which there is ammunition left, but it’s fighting a rearguard action that it can only slowly lose.
Hence the future is for a much lower Australian dollar as chronic economic underperformance destroys the relative Australian investment case amid a long arduous climb back to a more diversified economy.
In short, GMO is exactly right and you should put your money offshore any time the AUD bounces.
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David Llewellyn-Smith is Chief Strategist at the Macrobusiness Fund which is oriented offshore using a proprietary growth/value matrix and intends to increase these weightings as opportunities arise.
The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance.
