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Key Takeaways from Sohn Hearts & Minds 2022


As the world juggles uncertainties – from a lingering pandemic to an energy crisis caused by conflict in Ukraine to rising inflation and difficult environmental challenges – the Australian funds management community met in the serenity of Hobart to hear some great investment ideas, raising millions for medical research along the way.

 

And in a world of uncertainty there emerged some very clear themes of where safe harbour investing can be found. Not new themes to be sure, but certainly different to those pitched at recent Sohn Hearts & Minds (SH&M) conferences.

 

SH&M kicked off with fund manager, human rights activist and Putin’s number one enemy, Bill Browder. His unique insights on the war in Ukraine provided a bleak but relevant backdrop to recent market turmoil and many of the key themes that would emerge across the day.

 

According to Browder, having stolen a trillion dollars and hollowed out Russia’s economy, Putin deliberately started the war with its neighbour in a dangerous attempt to stay in power and keep his enemies at bay. Disturbingly, Browder sees no quick end to the war in Ukraine, with Putin not interested in negotiating an outcome.

 

The good news – and thank heavens there was some – Putin’s influence on economies around the world will diminish as time rolls on. Europe will find other energy sources, the world will be fed with other wheat.

 

Bill Browder’s investment tip? Cash, cash, cash so you have dry powder for when interest rates and inflation peak and assets across all classes start to look cheap.

 

But if Browder’s cash is burning a hole in your pocket, there were ideas aplenty of where you could go shopping.

 

First, boring is back baby. Companies with a long track record of resilient, stable earnings – and in recession proof or regulated industries – are gold dust if you can find them.

 

Second, and to pervert the Mark Twain quote, the reports of the death of tech investing have been greatly exaggerated. SH&M was dominated by quality ‘tech’ opportunities, but where ‘tech’ is now defined by profitable history, data driven models and where they sit as a critical player in macro growth sectors.

 

Third, and to no one’s surprise, companies that can leverage the global decarbonisation thematic, and demonstrate strong ESG principles, got a great hearing.

 

Finally, make sure your passport is up to date – and you have access to a global trading platform - because the majority of stock picks were offshore.

Boring is the new black

Cashflow is king, balance sheet strength is sexy. In-vogue value managers would argue it’s always been this way. But with inflation spiking, rates rising, and headwinds on the horizon, fundies were particularly keen on resilient, recession-proof businesses with longevity and strong earnings profiles.

 

Defensive picks like inflation-proof toll road operator Transurban from Catherine Allfrey (Wavestone Capital), Perpetual’s Anthony Aboud’s selection of Groupe FDJ and the bold selection of AMP by Fred Woollard (Samuel Terry Asset Management) showed how ‘the fundamentals’ were being undervalued, presenting attractive opportunities for upside.

Tech 3.0 (the technology enablers)

Glamour tech is on the nose. FANGS were absent from the agenda, and there was no mention of revenue multiples. Yet innovation still featured heavily, with those companies supplying the tech behind the tech attracting the attention of stock pickers this year.

 

Selections like Dutch listed AMSL (by Munro Partners’ Nick Griffin) which provides a tool for shrinking transistors onto the tiniest of microchips and Ireland’s Keywords Studios (picked by FACT Capital’s Joyce Meng) which supplies the “picks and shovels” for the fast growth video game industry proved that tech is here to stay.

Clean and green

It won’t surprise you that the do-gooders, those businesses contributing to the global push to decarbonise got the thumbs up from fundies, especially if they could be bought on the cheap.

 

Regal’s Tim Elliot picked ASX-listed Champion Iron for steely play on decarbonisation while James Miller from Firetrail Investments chose Darling Ingredients out of the US for its renewable diesel made from animal fats that will keep. Peter Cooper’s pick of Eurofins Scientific also ticked the boxes on ESG.

Looking abroad 

ASX listed stocks didn’t get much love from the SH&M stock pickers this year. While it is true that the ASX represents less than 2% of the global equity markets, only four of the conference’s 12 stock pickers selected a local listed company.

 

Attendees were taken to the US (Nike, New Relic, Darling Ingredients), Ireland (Keywords Studios), France (Eurofins and Française des Jeux), and the Netherlands (ASML Holdings).

 

There was even a China pick from Tribeca’s Jun Bei Liu – China Duty Free – surprising those of us who had just assumed that investing in the middle kingdom carries too much regulatory and political risk.

AND FINALLY…the funds management industry proves its generosity yet again

SH&M has raised more than $40 million for medical research since inception and the primary purpose of the event was to lift that number higher.

 

Enter WAM’s Geoff Wilson who urged the crowd to reach for their wallets. Leading by example, Wilson donated $100,000 before passing the mic to legendary Australian retailer Solomon Lew, whose family foundation generously pledged $500,000. Regal Partners followed up with an eye watering $1 million contribution.

 

Within a matter of minutes, more than $2 million was donated from the floor, underscoring the generosity of the Australian business and funds management community and their support for medical research organisations and initiatives.

169
speakers
220
partnerships
7200
attendees
+$65M
DONATED