Swell’s top takes from latest reporting season
Global equities boutique manager, Swell Asset Management, has revealed their key takeaways from the latest February reporting season, after fourth-quarter reports were released in the United States and half-year reports were released in Australia.
Swell’s four main observations included the division between good and bad tech; the limited ability of governments, businesses and consumers to tolerate higher interest rates due to rising debt; the important role technology plays to propel productivity; and the predictable nature of quality companies.
Lachlan Hughes, Chief Investment Officer at Swell, said these observations prove inflation is only one of many factors that investors and advisers need to consider.
“Amidst the volatility and noise, fundamental value is crucial because companies that provide high quality sought-after goods and services will perform strongly in the long term regardless of whether inflation is 2% or 8%.”
Hughes also said a warped supply and demand dynamic that is driving prices up and causing confusion in financial markets is only one of the consequences of COVID-19 economic stimulus that were coming to light.
“In the US, many companies beat expectations this reporting season, largely because expectations have been depressed due to COVID-19, which begs the question, where to from here, given investors are basking in the afterglow of an unprecedented, coordinated central bank pandemic response,” he said.
“The quantum of global debt, which the IMF recorded as $226 trillion at the end of 2020, means there’s a greater sensitivity to changes in interest rates.
“Compounding this are significant demographic headwinds, as the number of people over age 65 doubles to 1.5 billion over the next 30 years.”
Hughes also said there have been ample opportunities for tech companies to support businesses and older workers after several demographic changes and technological advancements.
“Technology companies have benefited from greater institutional and retail attention, reflecting the significant growth of technology spend as a percentage of GDP, however, as inflation rises and fears about valuations climb, investors have responded by savaging technology companies,” he said.
“Unfortunately, good tech companies – characterised by strong earnings and attractive multiples – have been treated much the same as bad tech companies which have had their share price bid up to historic highs, off the back of overly-optimistic expectations of a potentially rosy future.”