Welcome to the June market update.
In our latest video, we were joined by Mark Devcich, Chief Investment Officer and Ana-Marie Lockyer, independent non-executive director of Pie's board. We covered off these questions.
- What are the main concerns for markets over the next few months?
- It's been a volatile few months. How can volatility create opportunities?
- Company culture is important when it comes to stock-picking. How does Pie's board make sure that we also have a great company culture?
We have also included a transcript.
Founder and CEO
Market Update June 2021 from Pie Funds on Vimeo.
Sam de Court: Hi everyone. My name is Sam de Court and with me I have Pie Funds Founder and CEO Mike Taylor, Chief Investment Officer Mark Devcich, and our special guest today is chair of the Pie Funds board, Ana-Marie Lockyer.
SDC: Mike, we will start with you as per usual. Can you talk us through what's been happening in markets?
Mike Taylor: Sure, Sam. So, the biggest thing markets have been focusing on this year remains inflation. However, there's been a slight change in that in the last couple of weeks, in that the market seems to be comfortable now with an inflation figure of around 4%. In fact, the last time we had CPI data out of the US it appeared that the market was expecting a much higher figure, because what happened on the back of that is that US 10-year treasury yields came down, so they were running as high as 1.75% in early May, and they've now come back to below 1.5%.
So, that's an interesting signal, because it tells us that bond investors, who are usually supposed to be more astute than equity investors, are not worried about inflation. They're believing the rhetoric from the Fed, that inflation that's coming through at the moment is transitory, that we shouldn't be worried, and that we can cope with 4% inflation, for the moment.
So what that’s meant for us at Pie, in markets, is the growth assets that sold off through early May and we saw quite a big correction in some of our growth funds through that period, have rallied back through late May and into June. So there seems to be an interest back in, or a bid tone back into growth assets, with the Treasury yields coming back down. And that's the main move at the moment, seems that’s what markets are concerned about, like, other than a new Covid variant, that's probably the main focus for markets in the next few months.
SDC: Thanks Mike. So Mark, Mike touched on the fact that a number of our growth stocks have been pretty volatile over the last month or so. As an investor, how do you feel going through these periods of volatility?
Mark Devcich: Volatility is interesting, because it can create real opportunities if you can control your emotions. The problem is in the stock market, it's these businesses’ valuations are far more volatile so we're saying most of our companies and this is pretty typical that the difference between the 52 week high and low share prices are around 100%, per year, and there can be more extreme examples like A2 Milk. The difference between its 52-week low and high share price is... $5.40 was the low and $21.75 the high, so there's extreme volatility.
The challenge that we have is to try and use the volatility of the market to our advantage. There's a couple of quotes from the father of value investing Benjamin Graham around volatility and managing our emotions and investing in general. What he says is, ‘in the end how your investments behave is much less important than how you behave. It requires a strength of character in order to think and act in an opposite fashion to the crowd and also, be patient and wait for those opportunities.’
He also says, ‘investing isn't about beating others at the game, it's about controlling yourself at your own game’. So what we try and do is, in these times of extreme volatility or when we think the market’s mispricing the businesses that we own, we try and act in a contrarian fashion to the market. Stay rational, take advantage of those opportunities, and then we can actually add additional alpha, as we call it, or additional value-add on top of the returns that the business is generating of 15 to 20%. So, If we can buy some of these assets when potentially they’re unfairly sold off… and we've had some of our assets recently sell off 30%, 40%, we can buy them at those levels, knowing that the business is actually not worth 30 to 40% less than it was just a few weeks ago, we can actually make more than 15 to 20% per year. It's hard to do. If it was easy then everyone would be able to do it, but it's something we strive to continually manage our emotions and just try and take advantage of the opportunities that the market presents us.
SDC: Thank you very much Mark. All right, Ana-Marie. So back in April at our investor days around the country, Mark actually talked a lot about the companies that we are investing in and the huge importance that him and the investment team put on culture, and investing in companies with great cultures. If we turn the spotlight on ourselves, how do you as chair of the Pie Funds board make sure that the Pie Funds culture remains really great?
Ana-Marie Lockyer: Thanks Sam. Look, it remains fair to say the conduct and culture is at the forefront of my mind as a chair, as it will be for any financial services board, knowing that community and customer expectations in financial services providers are higher than ever and changing on a daily basis.
Building trust and confidence in our industry is an important challenge for us all. But, as chair of Pie Funds, we're really fortunate to have a passionate and customer-focused team at Pie delivering on this day-to-day, I guess, aside from the regular governance schedule, as a board, we try to spend time talking with our management with staff, current and ex staff, customers and our industry contacts to ensure we've got a feel for what is happening on the ground, and how the culture plays out amongst the staff at Pie.
I’ll share a couple of examples. Actually just touching on the investor series, attending the series as a guest allowed us to talk and gain a lot of feedback from customers. That feedback really demonstrated that customers appreciate the team sharing a real balance of the growth story, the learnings and the facts, in a really plain English way for the customers. In fact, feedback I saw from one of the customers said, ‘we have been to a few of these types of financial presentations, and I wanted to tell you how impressed we were with the team's key but excellent presentation’.
We of course run formal and informal surveys across the staff. That gives a real feel for all levels of the organisation, how the culture is, what some of the challenges are - and there will always be challenges and room for improvement, and it's what the team does with that, in terms of action plans, to continue to build the culture and make it great. This ensures that we'll run a profitable, sustainable business. We are there for the long term to create good outcomes for our investors and shareholders alike. The message to the team at Pie is keep doing what you're doing, and as expectations of staff, investors and industry move, reconsider what we need to do and move with it.
SDC: Thanks a lot for joining us Ana-Marie, really appreciate it. Thank you Mike and Mark. Thank you everyone for watching. Have a great next month and we will see you in July.
Information is current as at 11 June 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information.? Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.?