More Aussies than ever are investing in ETFs: where can you find value? | Switzer TV | 11 May 2026

本站添加: 2026-05-11

[00:00:00]on OSBiz. This is Spritzer.

[00:00:03]>> Hello and welcome to Switzer. I'm Paul Ricard filling in for Peter Switzer. On today's show, we'll kick off with uh uh Amy Lomz from PWC looking at what's what's in store for us in terms of further interest rate increase. Uh VanX, Jamie Hannah joins us to talk about what's going on in the ETF market. Amina Rosenberg from Miltor Capital was sharing some insights particularly about the the US technology market and why uh hardware or parts for hardware particularly the semiconductor index is booming. And finally we've got uh Sebastian Mullins from Schroeders talking about uh fixed income but also multiasset funds. I think something that particularly income investors may be interested in. Stick with us. My first guest is uh Amy Lomass from PWC. She's the chief economist. Amy, welcome to the program.

[00:00:56]>> Uh thank you very much for having me.

[00:00:57]Nice to meet you, Paul.

[00:00:58]>> Now, the Reserve Bank last week increased interest rates. Uh that's their third increase. Uh markets talking about uh some more this year. How many more interest rate increases do you think we're going to get?

[00:01:14]>> So, the first point is we've got two more board meetings before the end of the year. So, we've got one in August and one in November. Uh so we've got two opportunities for further rate rises.

[00:01:24]>> Uh and then to your point uh when you look at what the market is expecting uh it's putting the highest probability around uh rates sort of topping out at around 4.7%.

[00:01:37]Uh the big four banks have got something equivalent maybe slightly higher. Uh and then the Reserve Bank uh itself when it brought out its statement on monetary policy last week uh has a a peak uh cash rate at 4.7%.

[00:01:52]So really the question is how do we get to the 4.7? Uh I think it's um likely to be maybe one one more rate rise before the end of the year to get us sort of uh to that level. There's a couple of things that uh will influence I guess uh where it actually does end up topping out and uh what we might see out of the board decisions uh in August and November. And that really firstly comes down to the uh crisis in the Middle East or the conflict in the Middle East uh and how long the straight of Hamuz stays closed for and therefore ultimately what ends up being the oil price.

[00:02:33]Uh and then I think there's a second question in here which is uh inflation is well above the target but between two and 3% and so the I think the more important question is how long will inflation be elevated for uh and we do need to work on the basis of a higher cash rate for longer. I think um that's the world that we're in at the moment.

[00:02:57]Do you think there's much risk particularly with the uh Middle East stays uh in turmoil for a bit longer of of a sort of a mild recession developing in Australia?

[00:03:10]>> I don't see a recession anytime soon. Uh if you'd have asked me that question maybe before the Middle East war broke out, I would have said that I don't see that there's any likelihood of a recession in Australia anytime soon. uh with the war breaking out and given um Australia's uh large freight industry, its manufacturing, its mining, its agricultural industry, we are particularly exposed to uh fuel costs um far more exposed than what we were say to tariffs uh that were brought out last year by the Trump administration.

[00:03:49]Uh, so I would say the the the percentage likelihood of a recession happening has lifted relative to where I was before the war broke out. But do I see a recession? Uh, no. I I don't see one at all. I think the bigger question is what will the oil price be if the straight remains closed? And that will flow straight into prices and inflation if we see a much higher oil price. So the RBA is really about fighting inflation as opposed to worrying about sort of I guess its other objective is around full employment. Is that where you see its uh its focus at the moment?

[00:04:26]>> Absolutely. The focus is on inflation and there's good reason for that. So uh as I mentioned before, Australia's economic composition does include a number of industries that are highly dependent on liquid fuels, particularly diesel. Mh.

[00:04:42]>> Uh and those industries are often exportf facing industries. So they uh have very low elasticity of demand. That is if you are a minor you need diesel and you'll just pay the higher price in order to use the diesel and ideally you would then pay charge your customers more. Uh so what it means is that Australian diesel consumption which is um right up there in the top of the world in terms of our diesel use flows straight through into prices. It doesn't necessarily lead to a reduction in demand. So what that means for the RBA is that it has to firstly t inflation and it needs to take demand out of other parts of the economy which is what we saw uh them targeting with that rate increase last week. So, it's a it's a pretty blunt weapon. The interest rate increases, I guess, many people pay.

[00:05:34]Now, we've got the the budget tomorrow.

[00:05:37]Uh, is the treasur doing enough to help with the inflation fight?

[00:05:45]So what we need uh out of a budget is uh in this environment so out of the commonwealth government budget is a combination of spending restraint >> uh some targeted relief and the Reserve Bank has talked about this as well. So unfortunately it is lower income Australians and more marginal businesses that are impacted by a higher inflation environment. So some targeted relief to those that most need it is uh I think an accepted practice. Uh and we need supply side investment and productivity initiatives etc. um to increase the capacity of our economy to meet demand when things uh in the Middle East settle down. So from what I've heard from the treasurer and I think you can see that the government has spent a lot of time providing early indications of what we might see in the budget tomorrow is that uh this is exactly what the government is targeting. In fact the treasurer has come out and said that there should be somewhere in the region of around $64 billion worth of savings in this budget.

[00:06:51]So I would like to see uh the budget uh deficit being smaller over time than than what it has been historically. And that's a really important part of the government contributing or you know uh sharing some of the burden of uh tampering demand in the economy to help tackle inflation.

[00:07:12]>> And just coming on to sort of productivity I mean are they doing enough do you think to drive productivity? I mean the odd tax cut, the odd sort of instant asset write off extension. That seems like just tinkering a bit to me. What do you you any ideas in terms what how the government should really be you know driving this productivity agenda?

[00:07:34]>> So the government did commission the productivity commission late last year.

[00:07:38]You might recall there was um like a productivity roundt uh and then a number of papers that were brought out by the productivity commission that outlined across a various different um themes uh what adjustments needed to happen in order to lift Australia's productivity.

[00:07:56]Uh the treasurer has um stated on a number of occasions that productivity improvement is a key platform of this budget. And so we'll see tomorrow um how deep they've gone on on that front. But they have certainly talked about a number of ways that they intend to uh reduce say complication and uh red tape possibly green tape in sectors like the construction sector. Obviously really important when we're looking to improve housing supply is that we make that as easy as possible for builders. And there was uh there's been a lot of work done um including by the productivity commission that would suggest that we've become less productive at building houses um which is quite a difficult situation to be in when we're in an environment where we need to increase supply. So, uh, we'll see what comes out tomorrow. Uh, but if the treasurer's word is anything to go on, I think we should expect that there will be a number of initiatives that are specifically targeting uh reducing red tape and uplifting productivity.

[00:09:03]>> Well, we we'll watch out for those.

[00:09:04]Finally, just in terms of the initiatives around or alleged initiatives around capital gains tax and all the discounted capital gains and uh negative gearing and so forth, do you think that's really going to have much of an impact on the home market particularly on the demand side and will help the younger generation get into the housing market?

[00:09:26]Uh so well we've got um at this point in time uh a very clear signal of intent from the government around adjusting tax settings. Uh I think what's important to remember is there has been a lot of discussion about >> tax settings and its relationship to the housing sector that has been running for decades. And this is probably the first time we've seen a government willing to tackle some of those underlying tax settings. Uh so the intent is there and the objective is to try and level the playing field a little bit between how we treat assets and how we treat income earned by salary earners. Um with a view to make it easier for younger people to enter the housing market. What I'll be looking for tomorrow and I think many other economists is the detail around the implementation of that. Yeah, it is not simply a case of switching you know the the lever uh and making overnight adjustments. uh what our um what business wants and what industry has said is while everyone accepts that there are adjustments that need to be made uh the process of implementing those adjustments is just as important in order to provide I guess a certainty around the pathway to the changes being implemented. Uh and then I guess it depends uh what other provisions they put in there just to help with the smooth transition transition. uh for example um uh grandfathering arrangements etc. So let's see what comes out tomorrow. But I would say from an intention perspective there is uh no um there's no real contention that something needs to change. It's just really how deep does it go and what's the process for helping everybody to adjust to it there being a smooth transition.

[00:11:16]>> Well, we'll be watching tomorrow. Um thank you for those insights. Uh Amy, we'll put you down for uh one more sorry 4.7% for the cash rate and we'll be looking for some uh some initiative particularly transitional provisions around the tax changes tomorrow in the budget. That's Amy Lis, the chief economist from PWC.

[00:11:42]>> Well, ETFs have been all the news, exchange traded funds that is. And uh I've got Jamie Hannah. He's the deputy head of investments at uh at VANC.

[00:11:52]Jamie, welcome to the program.

[00:11:53]>> Thanks very much, Paul.

[00:11:54]>> Now, a lot of investors at all levels looking at the ETF market. Uh I guess we're following what's going on in the US, but where's all the action at the moment? Where are the money flows uh into the different types of ETFs at the moment? Look, generally speaking, Australians can get relatively good access to Australian stocks and shares on these share markets. So, what we're seeing is a lot more international equity ETFs. So investors buying a single ETF to get exposure to international shares from the US to Europe to some emerging market exposures. That's probably one of the major investment cases for ETFs in the biggest growth area. Um where we're also seeing some flow is into fixed income.

[00:12:32]So access to bonds either Australian bonds or international bonds. Um it's given giving I guess Australian investors um an ability to you know invest for a fixed income interest rate return that they can't get as an individual investor.

[00:12:46]>> Okay let's just deal with the the equity ones right presumably there over some of the the big indices. Um >> but one of the issues that I guess people have investing offshore is the currency risk because uh we've seen the Australian dollar go up to 72 cents from the low 60s. Can you get currency hedge ETFs? Absolutely. Um, currency hedged ETFs are available. Now, what they do is they hedge out any of the currency against the Australian dollar. So, all you're left with is exposure to the underlying shares. So, let's say you were holding Microsoft. Well, Microsoft might be trading up and down based on its share price. You'd only get access to that, not the movement of the US dollar in comparison to the Australian dollar. So yes, there is a a there is a you know many ETFs that are available with currency hedging over the top. I think what you need to think about though with currency hedging is that um the long run average of the Australian dollar and we're talking over 40 to 50 years here is somewhere between 70 and 80. Yeah.

[00:13:47]>> So we're right in that sweet spot right now at 72 cents which is very close to the long run average. So by hedging your international investment, you're actually taking away any form of uh return from the underlying currency movement. So if the US dollar was to go higher and the Australian dollar fell at the if you were unhedged, you would make more money on your return.

[00:14:11]>> I presume there's a little bit of a cost in in hedging.

[00:14:13]>> Very little. It's only about three basis points, which is 03 of a percent on top of the normal management fee. The cost of hedging is very cheap to do.

[00:14:22]>> Yeah. So sort of under 70 cents, you know, longterm would sort of pay to hedge. Above 80 cents, you'd think pretty carefully. Is that sort of >> Yeah, look, there's no hard and fast rule, but certainly when we're sitting around 60 cents to the US, we're seeing a lot more people investing into currency hedge products. And when it's been higher, people have gone unhedged.

[00:14:40]At the moment, it's relatively neutral.

[00:14:42]>> Right now, let's talk let's move on. I want to come back to the fixed income ETFs in a minute, but let's talk about some of the thematic uh ETFs. We've got things like uranium, we've got healthcare. Just tell me how what a thematic ETF allows uh investors to do.

[00:14:56]>> Yeah, look, a thematic is based on a theme. Hence that it's something that from our point of view has a long-term structural trend over 30 years or more.

[00:15:04]So if we think about some of them, there's a case for clean energy, uh uranium, um as well as uh some other diverse things like esports and gaming.

[00:15:13]So there there's all manner of thematics out there and it just gives investors a way to tilt their portfolio into something that's particularly topical at that point in time >> and you have to think about obviously themes and sort of trends go on for a while but an exit point with those sort of things or is that sort of something worth going into with sort of thinking up front where you might look to come out of?

[00:15:35]>> Look a thematic should play out a good thematic should play out over an extended period of time. It shouldn't be something that you're looking to trade into on a short period of time and trade out. We we never really structure our products for that type of thing. I think if you say uh clean energy for example, it's fair to say that there's a structural trend going on globally that you know companies are generally looking to invest a little bit more on the green side of you know production of energy.

[00:16:02]So that's a theme that will play out but it goes through cycles. you know, we saw certainly when Trump was looking to come in that clean energy companies were certainly share price was falling. So, yes, there is some cyclicality to buying uh these thematics, >> right? Okay. And just in terms of other equity uh ETFs, I mean, you're one of the few that offers u the u the equal weighting ETFs, right? In other words, each stock has exactly the same weighting in the underlying index. just explain to me what the advantages of an equal weighted ETF is.

[00:16:35]>> Yeah. So, if we think about Australia, um the top 10 stocks make up nearly 50% of the ASX 200. So, every time you're looking at the ASX 200, you see it moved up for the day. Over half that return has been generated by about 10 stocks.

[00:16:50]Yeah.

[00:16:50]>> So, that is not a very good representation of the Australian market if there's hundreds of companies in it.

[00:16:56]So what we've done is we've taken the top around 70 to 80 companies and equally weighted them so that BHP has the same weight as say TPG telecommunications and what it does is it gives a broader exposure to the Australian share market >> and is there evidence that that supports long-term growth? I mean how do how do these over time um equal weighted ETFs stack up? Yeah. So over the long term the CSRO and MES University did a study and they found that over extended period of times equal waiting is actually a benefit to investors. Now what can happen though is if BHP which makes up over 10% of the ASX if it has a big rally or if uh say for example one of all the big banks rally then you'll find equal weight might underperform in the short term but over an extended period of time you get slightly more exposure to those midcap companies the companies that aren't in the top 10 that are growing fast and they're seen as growth companies. So by going into equal weight, you get more exposure to the growth companies that will or hopefully at some point move into the top 20, >> right? Okay. So um let's move on to sort of some of the fixed income ETFs because fixed incomes a lot of investors uh have had mixed experiences with fixed income, I guess, because yields have gone up, but you've offer a whole lot of range of different products. So just sort of give me some examples of what I could get looking at some of your fixed income ETFs. Yeah, look, I mean what we offer is a, you know, a a diverse array of fixed income investments. We have uh governmentissued Australian government bond ETFs with different duration buckets and that is the amount of sensitivity it is to interest rates. We also have a number of credit ETFs which invest in Australian companies who issue bonds and that generally has a higher interest rate and the ones that we've structured have a floating interest rate. So as interest rates change, what we'll find is that the underlying ETFs, interest rate will also change to reflect any changes in the underlying rates, >> right? And so you're not getting you get the benefit of the Reserve Bank increasing interest rates, but you're not necessarily getting the you don't have the duration risks that you might have in terms of a government ETF.

[00:19:09]>> Exactly. So what we've done is just tried to package that and where we're seeing most of the flow at the moment is still into the floating rate ETFs which adjust their interest rates.

[00:19:20]>> Okay. Now moving on to the risk. I mean I think we we sort of uh well I think a lot of us are ETF investors. I certainly look at ETFs all the time. Um should there anything that investors should be concerned about in terms of who's issuing the product? Just just run me through sort of some of the parties in an ETF and what's a key point for investors to look at. Yeah. So an ETF is an exchangeraded fund and um as a result it has an ecosystem of different parts to it. So obviously being an exchange traded fund it trades on the exchange.

[00:19:50]So obviously in Australia trades on the ASX. So that's one party.

[00:19:54]>> Then we have all the assets of the fund.

[00:19:56]So all the assets of the underlying fund are held on custody with a separate party separate to VANC um that holds your investor assets um separate. So if anything ever happened to any you know van that your assets are still safekept.

[00:20:12]So that's one party. The other part are market makers. So the market makers are the ones they're firms that put the bid and the ask on the exchange so that the underlying investor can buy and sell the ETF at a fair value during the day. And then finally we also have the share registry. So the share registry keeps all of the details of your investment, your when you acquired them and your address details and they do all the mailouts to you. So within all that you have this ecosystem going on and there aren't any particular risks but all of them are equally important to the smooth running of the ETF market. So VANX sort of credibility is on the line but there are other parties and so in the event of look if there was sort of a market meltdown can you is is liquidity guaranteed? What's just sort of >> Yeah. So liquidity is never guaranteed, but the vast majority of the assets that ETFs invest in are liquid assets. We are not buying unlisted property or private equity, you know, that can't be wound up. So, we're buying assets that are freely tradable on any given day. So, the ETF is only as liquid as what it invests into. Um, but can anything happen? Well, anything can happen as we've seen over the years. However, your clients or the clients assets are safekept on a separate custody account.

[00:21:30]So, if anything were to happen to the ecosystem, the assets are still safekept for the underlying investor.

[00:21:35]>> Okay. Well, Jamie, thank you for coming and explaining that about ETFs, particularly your comments around uh the market weighted ETFs. I think they're really interesting and different opportunity for investors to look at.

[00:21:46]So, that was Jamie Hannah from uh Van.

[00:21:49]Coming up next is Armina Rosenberg from Mentor Capital.

[00:21:59]Welcome back to Switzer. Joining me now is Amina Rosenberg. She's the co-founder and portfolio manager for Minotaur Capital. Amina, welcome to the program.

[00:22:08]>> Hi, thank you.

[00:22:09]>> I want to talk about the global market, particularly what's going on in the US and AI and how you're seeing that impact different stocks and sectors. But just to put it in context because you're mainly looking at global opportunities, the Australian market has underperformed the US market.

[00:22:24]>> Yeah.

[00:22:24]>> What do you put that down to?

[00:22:26]>> Yeah, I mean it hasn't been disastrous.

[00:22:27]I think the ASX has done 5% year to date and um the S&P 500's done 5.7%. So yes, it is lagging quite far behind. I think part of it is index composition. So you know if you look at it the ASX is 35% financials 25% materials and information technology is like 2% right um for the US it's almost the exact opposite so where that's 35% uh information technology and you know obviously the big players of Apple Microsoft Amazon meta the mag 7 sort of dominate that and I think part of that is you know this AI infrastructure theme you're really seeing that playing out in the US where less expos exposed to it here in Australia. So I think that's probably probably the biggest reason by far. But then there's also I think our domestic macro is is a lot more challenged than they are over there. So you know you're seeing persistent inflation fears and interest rate fears here and the consumer is feeling that um and you're seeing that play out across the sectors as well. uh and particularly with you know sort of the bank's results and then I think you know with materials there's been less sort of demand uh or commodity linked demand um and China has seen less demand there as well.

[00:23:41]>> So do you think with uh particularly with the materials here locally we sort of got the >> you know China growth really hasn't come on just yet. Do you think we've got sort of the we're running in advance of what's really going on out there or or is there evidence to support a lot of the investment that's gone into material stocks?

[00:23:58]>> Yes, I think that um what's interesting about our market is I think you know some of the AI infrastructure where that's playing out is in the commodity sector. So you know you're seeing that happen with lithium and with copper and with other um metals that need um to be put into things like you know data centers and the like. Um, no, I think some of our precious metals have done really well just from a geopolitical risk uh basis. So, you've seen some of the the gold miners outperform, you know, your northern stars and evolutions here. Um, so that's really helped. But I think that, you know, China's been fairly subdued from like commodity linked demand on and particularly non for a little while. Um, so that's not really playing out right now either.

[00:24:40]>> Right. You said the US economy is doing better than Australia. Is that just because they're more naturally optimistic or you know I mean like we we we too focused on what's going on in the Middle East and is America over all that? What do you what you read in terms of just how important uh you know a solution or a settlement in the Iranian conflict is to the future of the US market?

[00:25:03]>> Sure. I think that um people see the US as being somewhat in control of that situation or at least um you know there's a lot of you know defense stocks that have done well over there as a result. Uh and then I think people just see um some sort of I guess less pressure on them because of this AI infrastructure thematic like that's not really having an like the geopolitical environment is not having an impact on that and you know the AI infrastructure thematic over there has just gone gang busters like you know you're talking about if you saw out of the last earning season meta Microsoft Google they're talking capex around US $700 billion this year that's um five times what it was 3 years ago it was like 140 billion there >> and ju just to explain where's that capex actually going what does it actually buy I mean we hear these numbers they're spending >> you know hundreds of billions of dollars is it is in data centers or isn't chips or processes what you sort of put a bit of color on that >> yeah it's it's in everything so I think everyone normally thinks about Nvidia so GPUs that's Nvidia's kind of >> the brains inside the service right >> exactly the brain inside the service but you're seeing those profitful pools brought it out. So yes, data centers is one of those things, but there's also memory as well. So, you know, you need to store this data. So, memory and high bandwidth memory is part of that, but even just like the power um that goes into that. So, you know, a utilities company in the US um has, you know, seen 21 next year energy, they've seen 21 gigawatts of demand just from AI um compute and power demand coming through.

[00:26:39]um you know something like Prismian which is an Italian uh cable operator they make optical fiber cables right they're seeing you know a huge amount of demand as a result of this AI infrastructure push as well so you I think you're seeing it all kind of trickle down um but I think memory is probably the most interesting area at the moment >> so who are the you're investing in that I assume who are the memory companies that you're investing in >> yeah so we're invested in SKH highix and micro technology it's actually effectively an igopoly between those two plus Samsung Electronics. And here's a really interesting point for you. So, um, Samsung Electronics and SKH Highix are going to be the number one and number two most profitable companies in the world next year. And they're sold out of capacity through 2026 and 2027.

[00:27:21]>> Um, if you believe analyst high estimates for next year, then they could out earn the Mag 7 next year, those companies.

[00:27:29]>> So, yes, memory is kind of it feels like where the bottleneck it feels like where it was where Nvidia was, you know, a couple years ago feels like that's where memory is now. I I noticed the company that makes uh USB is it sand disk or sand?

[00:27:42]>> It's gone for an enormous run. But that's not really the memory you're talking about. That's just a people getting onto it or >> I mean it's it's it's broadly similar like the memory that you've seen in a laptop. It's actually the same as the memory going into um I guess data center. It's called DRAM and NAND are the kind of the main ones but they're like high bandwidth memory. interesting because the the report out of JB Hi-Fi last week the CEO was talking about the cost of laptops going going up quite not exponentially but I think largely because the memory cost is that >> yeah yeah I mean that's that's pretty much right so um you really saw a step change um in those costs I think it was around November of last year um or October of last year so you just saw those prices skyrocket and we're actually short a bunch of what we call memory takers so um Lenovo >> memory taker Yes. A memory taker, not a memory maker. So memory maker's long, memory taker is short. And memory takers are things like your all of your sort of I guess laptop players. So Lenovo, Dell, Asus, we're short all of those names.

[00:28:43]>> So we've seen a lot of movement and I guess here in the the SAS market, right?

[00:28:48]Software as a service. Uh >> you know, big big drop in the index in the in the US. We've seen the impact on the likes of or companies sort of getting caught up in it like Zero and the Promedicus and >> yes >> technology one. What's your sort of view on SAS? It was like sort of shoot first ask questions later. Is is AI going to >> going to ruin these companies or yeah >> is that a chance that they'll they'll adjust their business models? What's your sort of view on that at the moment?

[00:29:14]>> Yes. So Minotaur's had a really interesting journey with software actually. So, um, kind of in December of last year, we kind of came out and said, "Oh, they've all been derated and it's because of these AI fears and we think they've been overblown and we're long, we were long names like Atlassian."

[00:29:29]>> Um, and then Christmas, New Year's happened and you know, I like most people were was drinking cocktails on the beach like a normal person. But my co-founder is a software developer and a fund manager and he came back from the holiday period and said arms I've uh I've coded up a whole bunch of agents and the abilities of these large language models to code up software completely changed. And so you went from um chat bots to agents which is where all sort of the SAS apocalypse fears came from. Now we flipped and went short in January of the sector but the D-rating that we saw was was swifter than we anticipated. um you know you saw names like Salesforce um down like 30% right >> and so basically um we we switched it out and we potentially were a bit early but what you saw out of the last reporting season is the market is being more um discriminatory when it comes to the SAS names so you can't just short the bucket um outright anymore uh and you know an example again is Atlassian so it's really being seen as this the bellweather of software and their last result was actually quite good um you know they saw saw cloud growth reacelerate uh and they saw things like so users that use their AI monetization tools they um use twice as many uh AI credits and they use or they develop twice as many agents and I think what you're seeing now is that there's a bifocation in software between um uh tools that your agent will use and tools that your your agent will replace. So that's where we're going.

[00:30:57]>> So can you sort of spread that into a local context for me? Do you have any views about like likes of the zero or promedicus or even technology one uh >> they've had huge drops in share price right they now seem to be finding a bit of a base is that >> yeah so I think if you're embedded in workflows and you got lock in there then you're okay but you know as an example we're talking about zero you know our um one of the the agents that we have coded up just operationally at minotaur is a tax agent right >> so uh you know think what you read into that what you will I mean we have a short on zero or anything, but I do think um if if you can um code up an agent to do something easily, then you're definitely under threat.

[00:31:38]>> Okay. Now, let's um just move it a little bit. Just about talk about software engineers a little bit. And I'm just trying to think of some examples here locally, but the CEO of Anthropic last week, I said there won't be a a software engineer in a year's time. In fact, they'll just be managing hundreds of agents, right?

[00:31:54]>> So, no one will be writing a line of code. How do you how do you sort of see that and what that might mean to a lot of these companies going forward?

[00:32:01]>> Yeah, I think um again I think it it comes down to like what tools do agents replace and what what tools do they use?

[00:32:08]So you know one of the other interesting things about the Atlassian earnings result was that they saw users expand 10%. Now there's been this whole narrative around AI replacing >> going to crush their number of users.

[00:32:21]>> Yeah, exactly. But that's a direct narrative violation of that, right? So um I think and you know I think Mike Hambrooks came out and said actually we've seen no evidence of any sort of seat compression um across the board. So look I you know I'm probably a bit more optimistic around there being a redistribution of workforce as a result of AI and I do think software engineers will still be needed.

[00:32:42]>> Yeah. Okay. Now you don't just invest in in uh in software or sorry in the tech sector. You've got some bets in the healthcare sector which is topical again today. We've seen Coccia, we've seen CSL, other bad news.

[00:32:54]>> What do you You're looking globally.

[00:32:56]What do you like in the in the health area?

[00:32:58]>> Yeah, I mean we own Eli Liy which is kind of in that GLP1 space and we own another company called >> So GLP1 is the weight loss.

[00:33:05]>> Yeah, that's right. So Ampic and Wgoi um and we also like uh Chugai Pharmaceutical which is an an unknown Japanese stock. It's funny that it's unknown because it's $80 billion market cap, but no one knows it's because it's listed on the Japanese stock exchange, but it actually develops the oral version of the GLP1 for Eli Liy. So, you know, GLP ones you have to inject. They come in like a needle. Um the all of them are kind of developing an oral version of that. So, a pill. So, you know, the total addressable markets of those guys are going to increase because more people are probably likely to take a pill than they would to inject themselves. So, we do like that space.

[00:33:40]You mentioned Promedicus before and we do think like um AI tools for diagnostics are are probably um you know the likes of Promedicus won't be under threat by you know the likes of Claude or anything like that because of like FDA approval >> and just help people aren't going to >> Yeah.

[00:33:57]>> Yeah. It's probably one of the last exactly right.

[00:34:02]>> Yeah. Okay. So people want to invest in your global opportunities fund where how do they do it?

[00:34:06]>> Yeah. So you can go to minotaurc capital.com. We just uh passed the second year anniversary of our fund and we did 20 and a half% peranom since inception. You know the market or our benchmarks done 15.5% um peranom since inception. So five percentage points of our performance I think is pretty good but it's early days. Um yeah.

[00:34:24]>> All right Amina thank you for joining us. That was Amina Rosenberg from Munur Capital. Coming up next is Sebastian Mullins from Schroers.

[00:34:39]Well, with the Reserve Bank increasing interest rates, we've seen a little bit of movement high in bond yields. My next guest is Sebastian Mullins. He's the head of multiasset and fixed income at Schroeders. Sebastian, welcome to the program. Thanks for having me, Paul.

[00:34:52]>> Now, yields and interest rates have been going up a little bit. So, maybe you could just give us some context around what we've seen in the last couple of months there.

[00:35:00]>> Sure. Sure. So, fixed income has really seen a a lack of better word turbulent time over the last couple of years because we're now moving to an interest rate hiking cycle here in Australia.

[00:35:08]That's pushed yields higher, but that means prices lower. So, those who typically buy fixed income to protect their equity holdings have not seen that equity bond correlation work in their favor. Um, what that does mean, however, is that you are getting more yield now.

[00:35:22]So some some investors who are used to having their equities protected by their fixed income >> paying next to nothing back in the day zero rates back in you know a few years back now you're getting paid something which is great an income stream but you're not getting that defensive allocation. So some investors are questioning why whole fixed income in their portfolios if it's not protecting their equities right now.

[00:35:39]>> So we're seeing some pretty attractive rates particularly for short-term term deposits. If I'm looking a bit further out, looking more at some of the corporate bonds, what sort of return should I be getting uh in the fixed income market?

[00:35:52]>> Depends how much risk you want to take.

[00:35:54]>> So, you think about term deposits. Yes, they're looking attractive. So, we have plenty of clients and investors who say, well, I can lock my money away in the bank for four plus to 5% for one year plus and that's great yield. I'm not denying that whatsoever. But if there's an opportunity in equities, let's say the market crashes, you have to wait for that to mature or pay a lot to break from it. So there are better alternatives that have daily liquidity.

[00:36:15]So you can move into corporates for example, you can get more like 6% there or you can find a a multiasset or fixed income fund that has a bit more diversification benefits.

[00:36:24]>> So we like to promote funds that have that ability to go anywhere. I think you had Jamie on earlier talking about government bonds or corporate bonds.

[00:36:31]>> Um making that decision which way to go can be quite difficult for investors. So we provide products that mix those together and decides depending on our forward-looking view. Do you want to have more carry for credits or do you want to have more government bond protection in case interest rates start to come down?

[00:36:48]>> Yeah.

[00:36:49]>> So right now we don't think interest rates going to come down at the moment.

[00:36:51]Obviously we got hikes price for the next couple of months. Um but having that carry with corporate credit means you can get six plus% yields right now which is quite attractive.

[00:36:59]>> So people seeing a lot of the pressure about private credit. So um what what is sort of like a a multi-asset fund that you have offer compared to some of the sort of you know do you want to come lately producing a private credit fund uh may do you want to just cover that for me?

[00:37:16]>> Sure. So I think my multiasset hat on you know all asset classes are worthwhile looking at it depends on the valuations what you're getting paid and how you're getting the access for it.

[00:37:25]>> So private credit in Australia specifically is a nice way to get subinvestment grade corporate credit.

[00:37:30]There's no listed market here where you can buy, you know, high yields like you do in the US. You have to go private to get that exposure.

[00:37:37]>> When you say subinvestment grade, you mean these are companies or borrowers who don't have an investment grade rating, >> correct? And and can't get the money from their bank necessarily and so are looking at other ways to >> raise the the finances.

[00:37:51]>> That's exactly right. So, normally we say tripleB is the floor for investment grade credit. Anything below that is subinvestment grade. um in the US they call junk bonds or high yield bonds.

[00:38:00]Yeah. Um that market doesn't exist here.

[00:38:02]So you do have to go and invest in private debt to get exposure for the you can get high yields there. We're talking like 10 plus percent. So some say equity like returns for bondlike risk. That's semi- truer. But the real the reality is it's it's it's locked away. You can't redeem tomorrow because it's it's private. You have to wait for the maturity.

[00:38:19]>> So if you have time to wait out that's fine. But if you're thinking about having liquidity in this volatile world, you want to have something more daily.

[00:38:26]So, if I can get eight and in private credits after I pay all my fees or I can get seven or six and a half in liquid daily investment grade credits right now, why would you make that call if I can get paid quite handsomely but have the liquidity to buy equities if we do?

[00:38:40]>> So, you're saying you really want a quite a big premium to invest in something like private credit. Is that right? Because >> well, your money's locked away. So, money's locked away, right?

[00:38:47]>> Make sure you have a liquidity premium built in there.

[00:38:49]>> Yeah. Yeah. So what are they when people talk about private credit what are they what's the borrower using the money for sort of >> it's mixed Australia it can last it can be a commercial mortgage so typically lots of funds are actually offering that where they they might have a block of land so they want to do some construction work to build a building that's the most risky that pays the highest yield or it could be a building that's finished but they're just finishing finalizing sales putting some cladding on that's a cheaper allocation >> or it's something like a leverage buyout so think about private equitym where they take a corporation off um listing to get that loan they have to go to the private debt market to offer that. So that's a corporation that pays income or has earnings I should say that's usually a 5year lockup whereas another one's one year lock up.

[00:39:33]>> And why are commercial mortgages high risk?

[00:39:35]>> Well if if something goes wrong you have to take over the land complete the project. Yeah.

[00:39:39]>> Um if you or I had to do that I don't know about you but I could not build a high-rise structure myself. I I I think I think people forget typically they go bust when the concrete's just been poured or about to be bought and you spend a lot of money >> to to to redeem the site, right? Or reclaim.

[00:39:52]>> Exactly. And right now inflation's higher. Yeah.

[00:39:55]>> Um interest rates are going up. So if you're doing that, that's more risky.

[00:39:58]Yeah. All things equal. Or you can get an allocation to a tripleB corporate bond which is daily liquidity. It might be an infrastructure play or a utility play. Those corporates have insurance, sorry, inflation linked earnings. Think about an airport, a port or an energy transmission line. um I I can get some pretty nice yields there right now um and not have to worry about inflation risk or have to worry about someone rolling over. So in my personal opinion and on the funds I manage I prefer to have in that sort of triple B Aussie corporate space because that inflation protection those corporates have as opposed to private debt.

[00:40:28]>> Okay. So you in your role you're also head of multiasset. So what's what's a multi-asset fund? Um so we run a few different multiasset funds but the main idea is to have a mix of asset classes blended together to give the best forward uh looking riskadjusted returns.

[00:40:43]So say riskadjusted returns because if you have just equities you'll probably do better in return terms y >> but there'll be more volatility.

[00:40:49]>> So a multi-asset income fund say what what type of assets would go into a multiasset income fund?

[00:40:54]>> So a multiasset income fund if we think about so we I'll talk about two different multiasset funds. One is a absolute return income fund that's purely fixed income but multiasset. So that's we have a ETF called Pays P A YS >> that's trying to deliver a cash plus 2%.

[00:41:08]>> So that can >> and that's on the ASX right.

[00:41:09]>> Oh that's on SIBO >> on C >> whatever it's called these days I think.

[00:41:12]>> But you can buy through your broker right you can buy it through com whatever you're on.

[00:41:17]>> Pays is the code >> PAS. So that's just for income. That's a nice cash um or ter deposit replacement or an allocation fixed income where as I said before you don't have to worry about getting that government duration risk right or corporate risk right.

[00:41:29]We'll do that for you. that invests in Aussie corporates, Aussie government bonds, that tripleB corporate space I mentioned before. It also allocates to things like um offshore government bonds or offshore credits. Uh it does have a little bit of private debt in there um so that we think size appropriately. So it gives you nice income but it's daily liquid.

[00:41:46]>> Mhm.

[00:41:47]>> On the other side I mentioned that triple B space. We do have an ETF that just focuses on that Aussie credit space called high hire income there.

[00:41:57]>> So that's just that corporate space I mentioned. Some What sort of return income return should would you be targeting or sort of as an investor would I like you to get >> that's get that's the objectives around cash plus three >> right >> um >> so it's the RBA cash rate plus% 3% so at the moment in the sevens or correct >> thereabouts yeah >> thereabouts so that's a mix of subordinated debts so think about sub debt bank subt hybrids which are going away >> so that one has a bit of that it has some corporate hybrids in there and the tripleB corporates I mentioned before so we like those base that's the fixed income side, a bit of top down multiasset.

[00:42:31]>> If you're thinking about broad multi assasset, I like invest in equities, commodities, currencies, credit, all those things I just mentioned. Um, but that's useful because in an environment that's more volatile, >> in an environment where bonds might not necessarily always protect you in a situation like now, we have a supply shock, not a demand collapse.

[00:42:48]>> So having something like commodities or even oil was a good hedge in that environment, a multiasset fund will make that call for you. So to defend the equities, we can decide where to allocate to whether it be currency, fixed income, uh commodities to smooth that return profile out. So in terms of ETFs and the ASX, we have grow. So grow your money stable.

[00:43:07]>> So we have grow, G. Yep. We have high, hu exactly. So those are three of the UTS.

[00:43:14]We have more, but those are the main ones I'm talking about today.

[00:43:17]>> And the idea is to smooth that return profile out. So grow is affecting trying to find CPI, Aussie CPI plus five, four to 5%.

[00:43:24]>> Mhm. um with lower draw downs and lower volatility.

[00:43:27]>> But a way to think about it is a balance fund like return like a 50-50 equity fund return um but for conservative fund risk. So low volatility low risk but giving you that higher return target.

[00:43:36]>> Okay. So they're multiasset funds.

[00:43:37]They're the things that you get from Schroers. They trade on the ASX industry broker. If I just look further a field I mean expectations about how interest rates are going to trend over the next couple of years. Where are you uh >> because you know we are talking about inflation or you know Reserve Bank doing a lot of inflation. and we've got the the Fed in the US sort of not quite clear which way it's heading at the moment. It's sort of gone off stopped easing for the time being.

[00:44:01]>> What's your expectation about interest rates going going forward? So in a medium-term view, we think interest rates will remain high, right?

[00:44:07]>> And the reason I say that is if you think about the postcoid world or 2020 onwards, um we've had a succession of supply shocks starting with the reopening of the economy, you have the supply chain issues, then you have the Ukraine war, now we have the Iran conflict. All of these pushes inflation higher and governments aren't exactly stepping in to um slow things down.

[00:44:27]They're spending more. You're seeing fuel subsidies here, for example. You're seeing populist policies overseas. That means a higher environment effectively with inflation. So that means yield's likely to be higher. So for us that means a that equity bond correlation breaks down but you're getting paid more to hold that fixed income allocation. Um you have to be more active in that space. Do I want to have inflation link bonds? Do I want to have a curve steepener? What governments can pay their debt or not? So I do think interest rates will be structurally higher. Um in Australia we've seen sort of a two-edged sword where we had a demand the RBA had a demand problem before the Iran conflict. lots of people buying goods, inflation very sticky, not falling back towards this band. Now you have supply shock as well. So for us that does keep unfortunately inflation higher. That keeps volatility higher, but you get more income. So there's a trade-off to some of these things >> and inflation linked product or you know you you mentioned that you've got uh the ETF grow and so forth uh which is not quite inflation linked but you should get you're trying to target a return like that.

[00:45:24]>> Correct. C do can you offer anything that is guaranteed inflation linked or >> um there's very few things far in between but you do have inflation linked bonds issued by governments. We used to have corporates back in the day but they're all gone now unfortunately. So Aussie government bonds for example there are inflation linked ones.

[00:45:38]>> Uh during March for about two days there's a chance to buy those at 2.8% real >> which means you get paid inflation plus 28.8%. Um that's dropped dramatically since then. Now it's about 2.3 2.4. Um but there are opportunities to buy those kind of assets. Um but there are other ways like buying commodities for example that does help you with that inflation side. Not exactly explicitly but it does actually give you that benefit.

[00:46:01]>> Right. Okay. Well look um Sebastian I'll I'll take your weary note about inflation staying high and interest rates staying on the high to medium. I guess that just puts a bit of a damp on thoughts about the equity market but we're going to have to think more about >> uh the impacts of inflation on different stocks going forward. I guess if uh if what you say is true, but certainly some ideas there with your high and grow and pays uh for investors to consider.

[00:46:24]Sebastian Mullins, thanks for joining us.

[00:46:26]>> Thank you.

[00:46:26]>> And that's uh Switzer for this week.

[00:46:28]I've I'm Paul Rickard filling in for Peter. He'll be back at the same time next week. Uh don't forget if you want to read about our stocks, see what we're thinking, then go to switzer.com.au.

[00:46:39]Um Peter will be back next week. We'll see you then. Bye-bye.

[00:46:45]From around the corner to across the world, these are the insights, experts, and ideas that matter for your money on OSBiz. This is Switzer. Catch up on demand at switzer.com.au.