Jason Todd

Stagflation has re-entered Australia’s macro vocabulary with unusual ease, but the label is doing far more rhetorical work than analytical work. In technical terms, Australia does not (yet) meet that definition, but the risk is already being amplified with qualifications somewhere in the fine print. Stagflation is a powerful word, but misusing it risks overstating the threat and misunderstanding how both policy and markets are likely to respond.

Equity investors are a resilient bunch. Over the past five years, markets have absorbed an almost uninterrupted sequence of shocks and moved higher. Only the inflation and rates shock of 2022 produced a sustained drawdown, and this was as much about the magnitude of the problem as it was about failing to recognise it early. Every other sell-off has been shallow and short-lived,  including the most recent, where markets did a round trip in a little over a month.

This is an encouraging trend, but one that is not fully recognised. Markets have not only rebounded from fears around energy supply disruptions but have done so while simultaneously ringfencing stress in specific pockets – notably the ongoing bear market in software and rising unease across parts of private markets. We think this reflects the resiliency of the macro backdrop as well as the tailwinds of structural drivers propelling parts of the equity market complex higher. There are a lot of naysayers, but recent history has illustrated that markets are now more effective at isolating shocks, reallocating capital, and distinguishing between what is systemically threatening and what is merely disruptive. Time and again, this has been on display.

That brings us to the current juncture. We do not pretend to know how or when the current Middle East crisis is resolved. But a ceasefire, even an imperfect one, has materially reduced tail risks which the market has been quick to price in. Negotiation under constrained escalation is always preferable to negotiation amid open conflict. While the first round of talks failed, both sides now have clearer lines of disagreement, and the fact that discussion continues under de-escalation is a meaningful step forward and in permanently removing the war discount from equities.

That said, some economic damage is inevitable and already in the pipeline. Elevated energy prices and inventory pressures will weigh on growth, particularly as confidence remains weak.

Australia has kicked an own goal via poor strategic policies around energy supply and a mish-mash of policy statements that have sown the seeds of confusion and panic. It is inevitable that growth and corporate earnings downgrades are coming. But while “stagflation” is a distinct possibility, we draw the line at using this as a reason to embrace a negative view on assets. In fact, we go further and suggest that it is now becoming a misused synonym for “danger” when, in fact, the outlook is far more nuanced.

Stagflation is often invoked as a synonym to infer investor danger, but it is a very different economic condition from recession, and far rarer. A recession has a clear statistical anchor: two quarters of negative growth marked by falling output and rising unemployment. Stagflation does not.

It has no formal threshold, no declaring authority (like the NBER in the US) and therefore has a looser diagnostic standard. In simple terms, it requires the coexistence of persistently high inflation, stagnating growth and rising unemployment, all at the same time. That combination matters because it traps policymakers where tightening worsens job losses, but easing entrenches inflation.

But it is because stagflation has no hard thresholds that it is so easily overused. Slowing growth with inflation above target is not stagflation unless labour markets are breaking. Anyone can sound bearish by reaching for the word, but true stagflation is structurally toxic, not merely uncomfortable – and mislabelling difficult late-cycle conditions as stagflation risks overstating the threat and misunderstanding how markets are likely to behave.

Economic strain, economic pain?

Much of the stagflation rhetoric applied to Australia collapses under closer inspection. True stagflation requires persistently high inflation, stalled growth, and a sustained rise in unemployment, simultaneously and over time. Australia does not meet that test. Inflation has moderated from its peak, growth is slowing but not stagnant, and the labour market remains tight rather than deteriorating. The danger lies not in the term itself, but in mistaking economic strain for economic breakdown and in not being able to differentiate between the risk of stagflation, a stagflationary shock and/or a period of prolonged stagflation.

Why is the equity market so elevated if stagflation is coming?

We are not concerned by the macro narrative that is amplifying the risk of stagflation or arguing that markets are complacent about downside risks because they have bounced back to record highs. There is a time dependency to the outlook, and the economic and earnings impacts are non-linear.

But we remain more optimistic than prevailing commentary and don’t see why the Australian markets cannot continue to perform despite growth and inflationary concerns. The most important question does not hinge on someone’s definition of stagflation, but on the mix of growth and inflation at which markets can perform.

Over the past year, the equity market has not had a problem absorbing inflation above the RBA’s band and provided inflation and growth shocks are temporary, I don’t think this will change outside of how you isolate the impacts for individual stocks. Obviously, we don’t know how the RBA will react or what the implications will be (with certainty) on corporate earnings, but the COVID-19 growth/inflation shock was not that long ago, and if memory serves me right, investors did not permanently discount stocks, and I can’t see why they would. We make the following points:

1. We think some of the recent panic reflects narrative amplification rather than new information. Political polarisation, particularly in the US, has increasingly distorted macro interpretation, encouraging investors to favour worst-case readings of events over probabilistic assessment. In other words, it’s been way too easy to be bearish, but that bias is now receding from prices, even if not from headlines.
2. We don’t see pre-Iran war highs as a constraint for markets, either offshore (particularly the US) or Australia. We think underlying equity dynamics were solid heading into the war, and while there are areas under greater stress as we exit the crisis (such as the consumer and industrials highly dependent on energy), we see this as isolated drags rather than market constraints.
3. Collapsing confidence is not inconsistent with elevated equity markets. Consumer confidence is weak, yet equity markets sit near record highs. That is not a disconnect – it is how markets have always worked. Confidence is a poor leading indicator for equities. It reflects how households feel about the past. By contrast, equity markets are pricing in the future value of earnings, which are not necessarily determined by where confidence sits. Furthermore, sentiment often collapses after economic stress is already evident, while markets often recover well before confidence does.
4. Peak Australian equities is not peak share prices for many stocks: The ASX200 index is only 3 per cent off its record high and has almost recovered the entirety of its Iran conflict losses. However, healthcare ( -18 per cent), IT (-17 per cent), consumer discretionary (-12 per cent), and property (-10 per cent) are all well down year to date. It has been defensive sectors such as consumer staples (+10 per cent), utilities (+8 per cent), as well as energy (+24 per cent), and materials (+13 per cent) that have driven the market higher. This performance distinction is consistent with cyclical concerns, not ignorant of them.

What should investors do?

We urge investors to carefully interpret “stagflationary” and “higher for longer inflation” narratives. The term stagflation is being overused and misused regarding its negative implications for investors. Even in a stagflationary environment, equities can still outperform bonds, and cash, given the erosion of real fixed income/cash returns, and if pricing power and defensive earnings streams support nominal earnings for the equity market.

The reason why the equity market has recovered despite ongoing energy supply concerns is that corporate earnings have risen due to the contribution from Energy and Materials. We think it’s wrong to argue the market is complacent on risks, given that the earnings backdrop remains supportive – if not bifurcated. What’s more, the market is discounting cyclicals and other areas of the market that are likely to come under downside earnings pressure.

On the other hand, there are clear relative winners from a short bout of stagflation, such as those with pricing power (energy, materials, and utilities) and those with defensive characteristics, pass -through ability and real earnings power (consumer staples & healthcare). We don’t think the market is mispricing risks, and investors should avoid getting overly negative off the back of a blunt statement that the Australian economy is heading towards stagflation. That time may come, but it needs to be seen in hard data and not just via a narrative that wants to cover all downside bases.

By Jason Todd, CIO

The post Stagflation: Already a misused label? appeared first on AdviserVoice.

Jun Bei Liu

Lonsec has rated the Ten Cap Alpha Plus Fund Complex ETF ‘Recommended’, citing confidence in the ETF’s underlying investment process and portfolio management ownership.

In its rating report Lonsec said lead portfolio manager Jun Bei Liu is a capable investor and has taken full ownership of the implementation of the Fund’s longstanding investment process.

“Liu brings a differentiated perspective to the process reflecting her cultural background and investment experience, with stock insights and portfolio management skill, including shorting, deemed to be strong. Liu’s two supporting investment analysts are considered to be quite capable and are adequately experienced, with an additional experienced dealing resource. The centralised team is aided by a collegiate structure and facilitates research collaboration.

“The Fund’s investment process is considered differentiated and delivers an intuitively appealing blend of fundamental long/short investing and usage of quantitative approaches to aid risk management,” Lonsec said.

Liu said: “We are focused on generating exceptional returns for investors by managing a long, short equity strategy that profits from stocks going up and down in the Australian market.

“The Recommended rating is a testament to the whole investment team’s efforts in executing the investment process to outperform the benchmark and deliver alpha to our investors.”

Jason Todd, CIO and co-founder, added: “Tcap was launched to make an institutional grade product available to a new set of investors. ETFs are a great vehicle for retail investors, offering affordable portfolio access.

“This rating reflects the confidence in Jun Bei, the investment team and investment process, and is an excellent outcome so soon after its listing,” he said.

Tcap (ASX: TCAP) was listed on the Australian Securities Exchange on 24 November.

Tcap’s underlying strategy is based on the firm’s long-standing investment offering, Alpha Plus, which is one of the longest running and most consistently performing long short equity only funds in Australia. Becore the launch of Tcap the strategy was only available to institutional investors.

The underlying strategy, the Alpha Plus fund, has returned 12.45 per cent a year since inception, outperforming the ASX200 index by 2.87 per cent.

Since taking over as manager of the fund in 2019, Ms Liu has delivered a return of 12.9 per cent a year compared to the ASX200 of 9.9 per cent – an annualised (net) outperformance of 298bps.

The post Ten Cap Alpha Plus Fund Complex ETF receives ‘Recommended’ rating from Lonsec appeared first on AdviserVoice.

Jason Todd

As the global economy balances optimism and risk, Ten Cap is approaching 2026 with confidence, noting underlying fragility remains due to lingering tariff concerns and rising imbalances as a result of the impact of artificial intelligence (AI) and technology.

Jason Todd, founder and CEO, says overall Ten Cap holds a glass half full view where economic growth consolidates around trend, before picking up deep into 2026 / early 2027 as the drags of the first half of the year diminish.

He says fears of an AI bubble and an unwind are overplayed, as AI-driven capital expenditure will reshape growth.

“At this stage, we see no accelerants that would turn selected weakness into systemic concerns for the US or the global economy.

“Continued investment in AI and technology will boost corporate capital expenditure, offsetting weaknesses in the US labour market and supporting global expansion,” he says.

But he says markets will see a patchwork recovery, rather than a synchronised boom.

“We expect advanced economies to slow, and emerging markets to see minor upside. But the recovery will be uneven and regionally divergent.

“Unlike many, we don’t see China disappointing, although neither do we see the potential for policy support to drive (sequentially) higher growth.”

He says central banks will continue to ease cautiously.

“The majority of policy support is already in place, but further rate cuts will continue into 2026. The central banks in the US, Europe, and the UK are likely to cut rates modestly, while Japan normalises slowly.

“China will use targeted fiscal and monetary measures to stabilise growth, as it battles structural drags from the property sector.”

But he says there are economic risks to the upside.

“Expectations for growth have been consistently exceeded through 2025 as trade uncertainty has not translated into meaningfully higher inflation or a supply shock. It has taken most market participants too long to recognise this. We don’t see AI capital expenditure slowing and we think policy support should gradually lift consumer spending and activity levels across developed economies,” says Todd.

Ten Cap’s lead portfolio manager, Jun Bei Liu, says in this environment she expects equities to surprise on the upside.

Solid gains are likely for global equity markets, which Liu says will be led again by the US where the rally will continue to broaden out with high quality tech and growth stocks remaining supportive off the back of a strong earnings outlook.

“We do not think the year will be characterised by the need to be overly defensive or to favour large liquid stocks over small and mid-cap cyclicals.

“A solid economic backdrop, slightly lower policy rates, and a recovering consumer and structural thematic are all positive drivers – offset only by valuation concerns.

“However, liquidity conditions will remain strong, risk-taking behaviour will continue and investors will not chase private markets at the expense of public markets because of value.”

She says it will be another solid year for Australia equities, and she expects the market to outshine dull expectations again.

“Australia’s economy is expected to grow around trend in 2026, supported by solid fundamentals such as steady labour income, strong immigration, and improving global conditions. However, the removal of the RBA’s easing bias will soften momentum, with two rate cuts likely, but not until late 2026.

“Fiscal policy remains supportive but is shifting toward revenue reform, which could introduce volatility for certain sectors.

“We think the Australian market will exceed the current “trend / on the fence” expectations of 7-to-10 per cent, underpinned by an improved earnings outlook and earnings-per-share (EPS) growth of 8-to-10 per cent, as well as a further “re-rating” rather than “de-rating” of price earnings (PE) multiples.

“A broad improvement in domestic macroeconomic conditions, particularly the consumer sector, will keep the equity market well supported even though valuation optics will look expensive.

“We doubt PE multiples will move lower outside of a global shock or a liquidity unwind. Fears of an overvalued market are exaggerated and comparisons to the long term historic average are not relevant.”

She adds growth stocks are a structural part of every portfolio, and she expects growth stocks to perform well into 2026 outside of any higher domestic policy rate increases, which are unlikely.

“We expect cyclical and consumer improvement, which means mid-and-small-caps will have another strong year, outperforming large caps (ex-materials).

“Energy stocks will be the sleeper in 2026,” Liu concludes.

The post 2026 – some worries but mostly wonderful appeared first on AdviserVoice.

Jun Bei Liu

Ten Cap will launch its first active ETF, Tcap (ASX: TCAP), on the Australian Securities Exchange on 24 November.

Tcap’s underlying strategy will be based on the firm’s long-standing investment offering, Alpha Plus, which is one of the longest running and most consistently performing long short equity only funds in Australia. It has been managed by Ten Cap co-founder and lead portfolio manager, Jun Bei Liu, for over six years.

Ms Liu says Tcap will bring a strategy which has until now only been available to institutional and advised investors, to a broader market of retail investors.

“We want all types of investors to gain access to our strategy and benefit from the returns that we have been generating for our existing investors for over two decades.

“The strategy’s defining feature is its ability to perform in both rising and falling markets. Gains can be generated from declining stock prices via short positions, making the fund’s performance less dependent on the overall direction of the market,” she says.

Ten Cap co-founder and CEO, Jason Todd says the launch of an ETF was a natural step for the business.

“This ETF represents a number of firsts for Ten Cap, following the launch of the business earlier this year. We wanted to offer an institutional grade product to a new set of investors and believe that ETFs are a great vehicle in which to do so and the right step for the growth of Ten Cap as a business.

“Demand for active ETFs is increasing as investors look for more cost-effective ways and an easier path to access investment strategies. ETFs are helping to reduce the friction costs of investing and at the same time are providing a broader range of investment products and options to a new generation of investors. We don’t want the Alpha Plus strategy to only be available to institutional and/or high net worth clients.

“The Tcap ETF is best suited for those who seek exposure to a unique and complex strategy that cannot be replicated via passive options, and one that is led by Jun Bei, an exceptional investment manager with a solid track record of delivering return to investors,” says Mr Todd.

Tcap aims for “equity-like” returns but with less market volatility given the strategy’s ability to hold both long and short positions. It offers clients core exposure to the ASX200 Index but with the additional option of holding up to 10 per cent outside the benchmark in small and mid-cap stocks. It is style agnostic and utilises a proprietary sector-based hedging strategy.

The underlying strategy, the Alpha Plus fund, has returned 12.45 per cent a year since inception, outperforming the ASX200 index by 2.87 per cent.

Since taking over as manager of the fund in 2019, Ms Liu has delivered a return of 12.9 per cent a year compared to the ASX200 of 9.9 per cent – an annualised (net) outperformance of 298bps.

Ms Liu adds the current market conditions make it a good time for this launch.

“We believe the cyclical tailwinds for the Australian equity market will continue to push it higher as we start heading into the new year.

“It is unlikely that the bull market is nearing an end, and as “fear of missing” out intensifies we think this could sharply push markets higher which will benefit the performance and returns generated by our ETF,” she says.

The post Ten Cap to launch first active ETF on the ASX appeared first on AdviserVoice.

Mark Kellock

Ten Cap has appointed Mark Kellock to the role of senior equity analyst within its investment team. He will work from Sydney and will report to founder and lead fund manager, Jun Bei Liu.

Mr Kellock joins Ten Cap following a five-year tenure at Red Door Capital Management where he was partner and senior investment analyst.

Prior to this he spent two years as a senior investment analyst Blue Pool Capital Family Office. He has also held senior research roles in the Hong Kong office of CIMB Securities, Barclays Investment Bank, Macquarie Group and Deutsche Bank. He started his career with Deloitte Australia followed by National Bank Australia.

Ten Cap founder and CEO, Jason Todd said the appointment is a key development that will support Ten Cap’s ongoing growth as it gears up to explore new distribution channels, including the launch of an ETF later this year.

“Mark brings more than 25 years of experiences in funds management and equity research. His experience includes leading high-performing regional teams and conducting research on some of Asia’s largest IPOs.

“His core expertise in the financial services sector including banks, insurance, fintech and SaaS – and his experience with additional sector coverage in technology, consumer, renewable energy sub-sectors such as EV, batteries and solar, as well as property and gaming – makes him a good fit for the Ten Cap team.

“Ten Cap has a singular focus on providing our clients with exceptional returns and experiences through the Alpha Plus Fund which is one of the longest running and most consistently performing long short equity only funds in Australia. Mark’s appointment assists us in maintaining that focus for our investors.”

Mark holds a Bachelor of Commerce, majoring in accounting and is a qualified chartered accountant.

The post Ten Cap appoints Mark Kellock as a senior equity analyst appeared first on AdviserVoice.

Jason Todd

The Australian market is set to trade higher for the rest of the year – potentially a further five to 10 per cent – according to Australian equities boutique fund manager, Ten Cap. This means investors should be overweight equities unless they observe risks increasing.

Ten Cap co-founder and chief executive officer, Jason Todd, says that the firm has been more optimistic than the consensus on the ability of equities to absorb and/or look through downside risks for most of 2025.

“We took the view that when US President Trump paused the implementation of tariffs on April 9, that was the peak in uncertainty. Since then, we’ve ridden the wave higher without the accompanying fear of doing something wrong.

“We have an optimistic outlook on the macro backdrop and from an equity perspective, whether it is international or domestically, we think the market will be meaningfully higher by year end. If you’re not long, you need to get long, and we think you just stay long until (and if) we see these risks amplify,” he said.

The current set of risks – ongoing tariff negotiations, elevated geopolitical events like the conflict in the Middle East, volatile commodity prices, and widespread distrust in the equity rally – are not enough to change this view, as Todd says positive drivers are also gaining momentum.

“We expect equities to continue climbing a wall of worry through the second half of 2025. Maybe not in a straight line but certainly with an upward bias. Equity markets are showing a high degree of resiliency through their repeated ability to absorb downside risks, and we think this is a solid base for further gains as we move into the second half of the year,” he said.

Ten Cap lead portfolio manager and co-founder Jun Bei Lui says the Australian market has the potential to finish the year with mid “teen” returns, driven by a combination of earnings upside and earnings multiple expansion, particularly in the commodity and cyclical related areas.

“I think investors will be surprised by how resilient the Australian market is to ongoing risks and volatility. We expect mid and small cap companies to have an even better year than some of their large cap counterparts,” she says.

Domestic cyclicals are also an area that should do well with early signs of the housing recovery becoming more pronounced, and consumer sentiment improving.

“Domestically, we are very confident that policy rates are coming down. For cyclical areas, whether it be consumer or interest rate sensitive areas, that’s generally a very positive driver.

“Our portfolio remains overweight key beneficiaries of this, with investments in JB Hi-Fi, REA Group, Seek, and Universal Store, where we see a clear path to earnings upgrades as confidence improves.

“For example, JB Hi-Fi has been that compounder that continues to deliver, despite the patchy retail environment for the last four months. We believe the company will continue to drive growth over the next 12 months, with the expected rate cut from the RBA an added tailwind for the company. Analysts often miscalculate forecasts on operating leverage, whether on the upside or downside, so when earnings are upgraded and revenue numbers starts to improve, the consensus still underestimates how much earnings upgrade will come through.

“We think the earnings environment will begin to bottom out this August reporting season and we’ll start to see some positive leverage. Valuations are not going to be a constraint for upside,” says Liu.

As part of its strategy to back high-quality businesses early, Ten Cap has also been a participant in several IPOs this year, including that of Virgin’s (ASX: VGN) relisting following its restructuring by Bain Capital.

“Virgin emerges from restructuring with a leaner cost base, improved margins, and a clear strategic runway. It is also good for Qantas to have some listed competition,” Lui says.

Ten Cap was a participant in the IPOs of gold and copper miner Greatland Resources (ASX: GGP) and retirement living platform GemLife Communities Group (ASX: GLF).

“GemLife has a proven operating model and clear demographic tailwinds. We see significant potential for scale and margin expansion over time,” Lui says.

While recent IPOs have traded a little mixed, Liu says strong demand is a clear indication of the underlying bid for new stocks and the extent of liquidity available for opportunistic investments.

As uncertainty in the US persists, Ten Cap believes Australia will establish itself as a safe haven for investors.

“The US is kicking own goals and outside of a recession, we think Australia can avoid the worst of these drags. While valuations are elevated, we have repeatedly argued that they are not a constraint to the domestic equity market trading higher, particularly when cyclical tailwinds are building,” Todd said.

The post Australian equities to overcome a wall of worry appeared first on AdviserVoice.

Jason Todd

It’s been a volatile period for equities. From record highs in mid-February, developed equity markets fell to within a whisker of a bear market by early April, only to recover almost the entirety of these losses by mid-May. The consensus narrative has not fared much better, as it jumped onto the recession/bear market call only to jump off this path a few weeks later.

In early April, we took the view that we were past peak trade-related uncertainty, and that despite rising growth uncertainty, markets would bounce their way higher as the bear case was slowly removed from expectations. We don’t profess to have any unique skill in forecasting what US President Trump will do next, but we thought that a pause and time to negotiate trade deals would be a significantly better outcome for markets than trying to bludgeon trade partners to death using shock-and-awe tactics.

While this view proved prescient, it’s fair to say that equities have rallied much faster and certainly further than even we had anticipated back in April. But that’s all hindsight now, and we are happy to bank the gains (or be labelled the dumb money, if that makes the smart money feel better). The more pertinent question is: where do we go from here, and as investors, what should we do?

We think the equity market outlook is constructive despite ongoing uncertainty around trade and growth. We believe the US can now avoid a recession, and that in and of itself should account for a lot of the recovery in equity markets, regardless of whether there is a wide confidence interval around final tariff outcomes and where economic growth settles.

Equity investors will still need to deal with a slowing US/global economy, the potential for slightly higher inflation, a modest earnings downgrade cycle as tariff impacts are either absorbed via lower profit margins or via lower sales, as well as the uncertainty that results from US President Trump running policy through social media announcements. But these are not insurmountable problems.

Similarly, we are not overly worried about the recent spike in long bond yields due to fears that US debt growth has reached unsustainable levels or for a period of hard data catching up to soft data – provided it does not begin to signal a more severe growth slowdown. No doubt, equity markets will continue to lurch from one concern to another, but a deep beta-driven sell-off is unlikely to occur outside of a return to recession fears. We realise this might appear optimistic given the recovery seen to date and where equity market valuations are now sitting. But there are several factors that support our constructive view:

Positive (Incremental) News Flow

Equity markets work off incremental news flow relative to a baseline. This baseline turned bearish in early April, and while the outlook is still for slower growth and higher inflation, led by the US, this is a step up from recession and a bear market. While it is harder to justify how fast or far equity markets have recovered, they have been buoyed by better-than-expected news around tariff rates and the willingness of US policymakers to make concessions. Although soft data is still pointing towards some “catch-up” in hard data over the coming months.

Slowing but Growing Global Economy

The global economy is slowing but still expanding at a healthy clip. Significant uncertainty remains, but there is also scope for increased policy support to underpin risk assets depending on how the economic landscape evolves. We know the Fed will cut rates if growth risks rise, and we take as positive the expectation that this might not be necessary until late 2025/early 2026, given the US economy is on a modest glide path lower.

A Relatively Insulated Australia

Australia remains largely sheltered from the direct impacts of a global trade war, and the RBA has only just embarked on its rate-cutting cycle. With inflation no longer an impediment to further policy easing, the A$ at favourable levels, and the equity market largely domestically domiciled, we are not as surprised by recent outperformance as many market commentators have been. Markets move off expectations, as they are far from dire, even if there are hints of complacency creeping in.

Bond Yields Unlikely to Unwind Risk Assets

We think the fear around US long bond yields undermining risk assets is overdone. Since the end of the GFC, private sector debt has fallen meaningfully in the US (from 290% of GDP down to 210%), while government debt has doubled from 60% up to 120%. Thus, while the composition has changed, leverage has remained relatively steady at ~3.4x GDP. In addition, the US economy has been growing sufficiently fast to offset this debt.

It’s possible that a rising term premium pushes yields moderately higher, but we see limited risk that bond yields detach from growth-driven fundamentals in the near term – particularly with short-end rate cuts on the cards later in the year.

Summary

Markets are approaching early-year highs, yet macroeconomic conditions have unquestionably deteriorated. This does create a conundrum for investors: do you bank the gains, or do you weather some volatility in the hope that equity markets can look through these headwinds? Arguing that markets will encounter volatility versus arguing that there is meaningful downside are two different things. The first is a certainty, given the long list of risks. The second is less certain, and we don’t think this is something to position for.

Growth risks are elevated, as are equity valuations. In addition, fixed income markets are behaving badly at the long end. But zooming out from these concerns, and excluding a US recession, we don’t think the picture is that dire. The US economy, while slowing, is doing so gradually. Most financial markets have experienced a tightening in liquidity, but debt markets are functioning, and financial conditions are not onerous.

Closer to home, Australia remains well-insulated from the global trade war and stands to benefit as China ramps up policy support to offset trade headwinds. In addition, the RBA is in the fortunate position of facing fewer severe trade-driven inflation fears, which should open it up to a more aggressive easing path if conditions warrant. At present, market expectations are for an additional 75bps of easing by year-end (down to 3.10%). We think this is the minimum rather than maximum level of easing likely to take place before the cash rate bottoms for the cycle.

We understand concerns around equity market valuations, with the ASX200 now trading at 19x forward earnings. However, if institutional investors are still catching up to the rally, then we doubt further positive news flow will prevent the market from trading higher. However, the “beta” rally, which has driven all stocks higher, is likely to be replaced by an “alpha” rally, where upside is driven by stock specifics. This will see upside momentum slow, but rather than folding at the first sign of trouble, we think the market can stare down economic softening risks and finish 2025 higher than current levels.

By Jason Todd, CIO

The post Sticking with the Rally appeared first on AdviserVoice.

Jun Bei Liu

Lonsec has rated Ten Cap’s Alpha Plus Fund ‘Recommended’, citing confidence in the fund’s investment approach and leadership.

In its rating report Lonsec said portfolio manager Jun Bei Liu takes full responsibility for the investment process and key decisions, and she clearly explains her investment approach and takes strong ownership of how it is carried out.

“The fund’s investment process stands out, combining detailed research with long/short strategies, and using data tools to help manage risk,” Lonsec said.

“The Ten Cap team is strongly aligned with investors through co-investment, and the business shows good stability. These strengths, along with Jun Bei’s skills and experience, give us confidence in the fund’s ability to meet its goals.”

The ‘Recommended’ rating is part of Lonsec’s financial product ratings system, which provides financial advisers with insights to support their clients’ investment objectives.

Each rating reflects Lonsec’s degree of conviction in a product’s ability to generate risk-adjusted returns in line with relevant objectives.

Jun Bei Liu, lead portfolio manager, said, “We are focused on building a disciplined and repeatable investment process that can stand up to scrutiny and deliver long-term outcomes.

“It’s encouraging to see this approach acknowledged so early in our business’s journey.”

Jason Todd, CIO and co-founder, welcomed the rating. “Having Ten Cap’s business and investment process recognised in these very early stages is an excellent outcome.

“It is a great vote of confidence in Jun Bei and the investment team,” he said.

The rating is underpinned by Lonsec’s peer review process, drawing on the full expertise of its investment research team.

The post Lonsec rates Ten Cap’s Alpha Plus Fund ‘Recommended’ appeared first on AdviserVoice.

Jun Bei Liu

Despite posting solid returns through 2024 the key drivers for the market to trade higher throughout 2025 remain intact, according to Jun Bei Liu, portfolio manager, and Jason Todd, CEO, of Ten Cap.

Ms Liu predicts the consensus will again underestimate the resiliency of the market and the tailwind from a combination of cyclical improvements, lower policy rates, improving confidence (both business and consumer) as well as record levels of liquidity, and that this will lead to equities moving meaningfully higher by year end.

“We started 2024 bullish and maintained our view throughout the year. As we head into 2025, we see no reason to adjust this view and are happy to be on the bullish side of a more moderate consensus outlook,” Ms Liu says.

“The global business cycle continues to expand, policy rates are expected to fall further, and inflation is no longer a concern. Even if inflation doesn’t moderate much further,  it should easily sit within key central bank ranges by 1H25.

“In Australia, the RBA has not even started to reduce policy rates, and this tailwind can be expected to gather momentum early into 2025. We think too much effort is focused on trying to time policy shifts when the main message should be that rates are heading lower and by year end will be 75-to-100 basis points below where they started. As to the exact timing, that’s simply a function of how the data evolves.”

Mr Todd adds that although economic growth is bouncing around historic lows, the trajectory is firmly higher. He says risk assets get comfort knowing growth has stopped declining. In the early stages of a recovery this is enough to raise the confidence of investors.

“Off the back of enormous levels of excess liquidity in the system, and easier financial conditions, we think equities will have another strong year as earnings growth begins to pick up and revision momentum improves,” he says.

“There is too much concern around valuations for equity markets acting as a constraint to further gains. Elevated valuations are more a stock specific story than a market story.

“Falling rates, improving earnings and rising animal spirits are positive tailwinds and these should be sufficient to offset political volatility and uncertainty around China’s outlook,” he says.

At the same time, Ms Liu says she doubts 2024’s winners will be the same in 2025.

“As the domestic economy picks up and as rates fall, we expect better performance from cyclical areas and/or those exposed to an improving global backdrop who can also benefit from a weaker Australian dollar.

“The consensus appears reluctant to consider yesterday’s cyclical laggards, but we think this is where the stock specific opportunities lie.”

Mr Todd agrees and says valuation and ‘bubble-like’ concerns are misplaced.

“The equity market is not cheap, but neither are valuations at self-correcting levels.

“Long bond yields have moved higher but importantly it has not come at the expense of widening credit spreads (even below investment grade). So while this is a minor headwind, it has not signalled a broad tightening in financial conditions and so the equity market has largely absorbed this rise.

“Similarly, for every sector that appears expensive – such as tech and financials – there are large market cap weighted sectors that are trading at discounts, including energy, materials, utilities, and staples.

“In addition, the global policy rate cut cycle is not complete and while expectations have moderated for the US, we do expect further easing to take place. We expect the US to underpin the global growth outlook supported by China which is now doing more to backstop its economy.

“Optimism the US – as a result of the US presidential election – together with record levels of cash are underappreciated supports for equity markets, and this will provide a floor for any technically driven sell-downs.”

Ms Liu adds: “Historically, equity markets have had two 5 per cent corrections each year and a 10 per cent correction every 18 months. It’s well within a normal trading pattern to see moderate periods of weakness for the equity market without the bull market that began in late 2022 being broken.

“Within the equity market, an improving cyclical backdrop alongside lower policy rates is very supportive for the smaller and mid cap end of the market, particularly given the defensive / growth tilt that has been in play through 2024.

“We think falling risk aversion will support out-of-favour areas within value, such as energy and materials, as well as rate sensitive areas, such as selected property and laggard consumer plays. In addition, a steepening yield curve alongside rising capital market activity will benefit some diversified financials,” she says.

-oOo-

TEN CAP MEDIA RELEASE

Liu, Todd launch new hedge fund business

Fund manager Jun Bei Liu and CEO Jason Todd will launch a new hedge fund business, Ten Cap, on 1 February 2025. It will be the largest ever launch of an Australian long-short equity-only hedge fund  at just over $1.5 billion.

“Alpha Plus will become Ten Cap’s flagship fund.   The fund is one of the longest running long short strategies in Australia and Ms Liu has been lead portfolio manager of the fund for the past five years via Tribeca Investment Partners.”

Mr Todd says the fund provides exposure to the ASX200 Index through a style agnostic strategy, overlaid with a proprietary long-short allocation and hedging strategy.

“Under Jun Bei’s stewardship, the Alpha Plus fund has been one of very best performing in market over both a short and long-term period.

“While the investment process and how the fund is run by Jun Bei will remain unchanged, she will now have a dedicated investment team and trader. The historic performance of the fund, back to 2006, remains the same.”

Mr Todd says the boutique investment firm will reflect the core values and beliefs of the founders and is an opportunity to bring together two sets of highly complementary skills.

“We believe that a fund management company does not have to be large or have multiple funds to be successful. “Our goal is to continue to provide our clients with best of breed returns and a best in class investment experience.”

Co-founder, Ms Liu, says she has already hired a highly experienced investment team that believes they will add to a proven and trusted investment proves, in turn providing even better outcomes for clients.

“Ten Cap will bring a fresh approach to Australian funds management – where money managers are accessible and where trust is built up by putting clients first and growing together.

“The objectives of the fund have not changed. We aim for equity-like returns but with less market volatility given the fund’s ability to hold both long and short positions.

“The fund will continue to operate under its established investment mandate and fee structure, ensuring continuity and continued excellence in performance,” Ms Liu says.

Tribeca will continue to provide middle and back-office functions for the Alpha Plus fund via a third-party supplier arrangement.

The origins of the name ‘Ten Cap’ come from the letter ‘J’ being the tenth letter of the alphabet and the first letter of its founders’ names.

“It also represents our strive for perfection of being 10 out of 10,” Mr Todd says.

The post Rising animal spirits to boost equity markets appeared first on AdviserVoice.