John Lobb

Nanuk Asset Management (Nanuk), an industry leader in sustainable and responsible investing, this week announced the appointment of John Lobb as a Portfolio Manager. The appointment adds further resources to Nanuk’s experienced investment team which is focused on opportunities arising from the long term trends associated with environmental sustainability and resource efficiency.

With over 32 years experience as an equities analyst and portfolio manager, Mr. Lobb brings a wealth of experience to Nanuk. Prior to joining Nanuk, he served as a Global Equities Portfolio Manager and Senior Analyst at Insync Funds Management. Previously, he has also held key investment positions at Orion Asset Management, Credit Suisse Global Asset Management, and Citigroup Global Asset Management.

Mr Lobb joins an experienced investment team at Nanuk which includes Chief Investment Officer, Tom King, London based Portfolio Manager Binya Even, along with Australian based Portfolio Managers Jane Henderson, Tristan Patience, Peter Wilmshurst and Marie Miyashiro.

Mr King commented, “We are delighted to have John joining our team. His focus on identifying quality, undervalued businesses benefitting from structural tailwinds is very well aligned with our approach. He is well known to us having previously worked with Tristan and Nanuk director Tim Ryan.”

“John’s experience will improve our capacity to research the expanding numbers of opportunities related to the emerging ‘sustainability revolution’ and his focus on quality and growth will complement the approaches of our existing team.”

“It is an exciting time for sustainably themed investment, with technologies such as electric vehicles, renewable energy and the internet of things moving from infancy to maturity and new opportunities emerging in areas such as hydrogen, carbon capture and storage and artificial intelligence,” Mr King said.

Nanuk recognises that environmental challenges present both opportunities and risks for investments. The recent breaking of global temperature records, with average global temperature reaching 17C this month, surpassing the previous record of 16.9C set in August 2016, serves as a clear reminder of the likelihood of further government support for more sustainable technology as we move through this decade.

Dan Powell, Head of Distribution for Nanuk, commented, “Investor and financial adviser demand for sustainable investment continues to grow due to several key factors. Investor preferences, regulatory mandates, corporate pledges, increasing recognition that climate factors impact investment performance, and that significant change at a global level creates investment opportunities and risks which all contribute to this trend”.

Mr Lobb holds a Bachelor of Economics Majoring in Finance and Accounting from Macquarie University and a Graduate Diploma in Applied Finance and Investment through FINSIA.

Mr Lobb is based in Sydney and started with Nanuk on 17 July 2023.

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John Lobb

According to Insync Funds Management (Insync) there is further evidence supporting many of the views it held back in its 2022 industry White Paper Will the second half and beyond for equities be different to the first?

In this White Paper, Insync said five common assertions had been stirring the pessimism pot, one of which was that the resumption of rising interest rates, and therefore inflation, is firmly established.

Insync Portfolio Manager John Lobb said, “We disagreed with those pessimistic assertions then, and in the face of further evidence, we still disagree.”

In August 2022, Insync said the incredible rate of money creation during 2020-2021 of 20% to 30% pa, had dramatically slowed to the average of the historic range of 5-6%. Excess money had been chasing an interrupted supply of goods and services up until last year, pushing up prices artificially.

“Today, the Money Supply (M2) rate of change is negative (-1.3%). This has not happened for at least 80 years,” Mr Lobb said. “This development would be of concern to the Federal Open Market Committee (FOMC), since productive investment relies heavily on the availability of credit.”

In 2022, Insync had also pointed out that inflation of the price of goods leaving the gates of Chinese factories, which had been running at 13-14%, had dropped back to 4%.

“The factory gate prices of Chinese manufacturing plants have now declined at -1.3% over the last year,” Mr Lobb said.

Additionally, he said that a decline in the net number of small to medium (SME) businesses looking to implement price hikes, also identified by Insync in August 2022, had continued to such an extent that SME pricing intentions in the next three months now match those prior to the pandemic.

Looking to carbon energy supplies, which was also touted as an ongoing inflationary pressure, the reverse has been true.

“It fell even further than we predicted,” Mr Lobb said.

“In more normal times, central banks largely ignore the ebb and flow of global energy and food prices. However, in today’s conditions where the labour force has contracted, rises in food and energy prices may strengthen the case for higher rates since pay demands could create a more sustained impulse to inflation.”

Mr Lobb said that fortunately, Natural Gas (MMBtu) has dropped 65% in less than six months, back to the same level as that during the previous four northern hemisphere winters

“Besides being used for heating, it’s a core determinant of fertiliser and thus food prices. Crude oil and therefore gasoline prices, have declined in excess of 20% to $78/barrel in the last six months. This is even below its price prior to the Russian invasion of Ukraine,” he said. “So, whilst the FOMC is usually more interested in CPI ex food and energy, they would appreciate how reductions in the prices of these non-discretionary goods has a positive indirect effect on wage demands in what is a tight labour market.”

Insync had asserted that inflation over the past few decades had been abnormally low, and they had expected it to settle around its longer-term norm, which is not bad for equity markets.

“This is exactly what it is heading towards. Five-year inflationary expectations are now congruent with the 5-10 year inflationary expectations (2.3%) which will calm the nerves of the FOMC,” Mr Lobb said.

“It has always been our view that long term inflation expectations will not revert to those of the recent abnormal past of around 2% due to a less (internationally) mobile labour force and a higher degree of onshoring. Nevertheless, the FOMC’s expectations will also be tempered by their assessment of the new global regime, mainly attributable to the re-evaluation of geopolitical risk by large corporates.”

Insync had also noted that looking at the core drivers of inflation it was hard to see price rises continuing as had been the case in the previous year and, if the prices of the core drivers of inflation stabilise, inflation would drop dramatically in this coming year.

“Even total weekly wages, a significant driver of ‘stickier’ service inflation, are now only growing at 3.5-3.75%, similar to the rate of growth that existed in 2019,” Mr Lobb said.

“As employees and managers become more accustomed to the increased prevalence of the hybrid work schedule, productivity should recover from the currently negative -1.7%, leading to an even greater improvement in unit labour costs (ULC). The Federal Reserve is keenly aware that ULC is the real culprit of endemic inflation.”

While Insync believes the global economy is unlikely to regain its ‘fluidity’, it also believes the central banks will feel more comfortable promoting a more neutral policy stance based on the above developments.

“Perhaps for those investors that hold a pessimistic view, it may be time to question this, to deploy assets towards those equites that are primed to deliver above average earnings growth in a mediocre at best, GDP environment,” Mr Lobb said.

Read the Whitepaper.

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John Lobb

Insync Funds Management (Insync) has released an industry white paper Will the second half and beyond for equities be different to the first? (the White Paper) which provides a data-based case for a more positive outcome for equities in the second half of 2022 than many industry commentators are currently predicting.

In an introduction to the White Paper, Insync Portfolio Manager, John Lobb, said that despite the present barrage of bad news and sustained focus on the negatives, there are more compelling facts, trends and activities that mean things may not pan out as negatively as is currently being predicted.

“The economy continues to evolve and there is little doubt that the last two years will cause a further change to its operating rhythms,” Mr Lobb said. “However, even though the economy is complex, industry participants tend to rely upon a few favourite data points to figure out the future. Additionally, the focus of commentators tends to coalesce around the consensus view of an issue. We argue that this kind of approach is fraught with danger.”

The White Paper looks at the five common assertions that tend to stir up worry and pessimism that are often used as a basis to alter present portfolios.

“We respond to each of these assertions with a counter view backed up by facts and observations critical to the likely future outcomes of each assertion,” Mr Lobb said.

The five assertions include:

1. Carbon energy prices will keep rising – our analysis reveals that prices are not likely to either significantly increase or decrease for the next year or so
2. Global transport costs have skyrocketed, forcing supply chain cost increases – the evidence suggests shipping cost price hikes were mainly Covid-related
3. Reshoring back to the West means higher prices – mostly the evidence is no, surprisingly not. It comes down to what’s being re-shored (incl. near-shored), and most goods are mainly higher-value complex goods (eg technology)
4. The US economy is heading for a major recession – the market suggests the US economy is unlikely to contract to the degree it did during the 2020 pandemic lockdowns, the 2008/09 GFC or the early 2000’s recession
5. The big one: interest rates. The resumption of rising rates is firmly established – so far, markets have suffered a valuation de-rating, from fear of consistent high interest rates. Equity markets have a lot more upside risk than downside risk when factoring in interest rates.

“We believe that 2022 could well be, once again, a game of two very different halves,” Mr Lobb said. “Allocating away from equities as a result of the present consensus may be the ‘risk-On’ call, resulting in a performance drag.”

Read the White paper.

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John Lobb

The past 12 months has provided an interesting short-term phenomenon where Covid-19 accelerated the flight to online shopping and remote communication technologies and food delivery services.

Many growth managers exposed to these stocks performed well. On top of this, many value managers have also done well on the back of the underpriced asset opportunity since the market tumbled about 30%. That said, choosing undervalued stocks was made a little easier in the wake of this ruction and even blue chip stocks were trading at prices not seen since 2008.

This all begs the obvious question, should investors and advisers tilt toward value management given the apparent ‘time in the sun’ they are enjoying, or focus on growth style firms that have generally outperformed over the past 10 years?

It’s hard to argue with the above data, but recency is a powerful motivator. We know that value management traditionally performs well through periods of economic activity and potentially rising inflation, yet this is not what we are seeing globally, in spite of the excessive central bank stimulus in the wake of the pandemic. Pundits generally agree this is mainly due to the nature of the government spending, which has largely been targeted at welfare and job security rather than economic stimulus and infrastructure. The velocity of money in respective economies has not significantly increased as a result, and there appears structural headwinds to the reflation story which would otherwise benefit value managers. This would suggest betting on growth managers may be the sensible option, and as we are conditioned to expect, the cycle always turns right? Perhaps, but any assumption that we are just in the regular economic cycle that favours one investment style then the other may be flawed thinking.

It is hard to see economic activity increasing massively in the medium term, and any expectation that it will underpin a sustained period of broad growth is very unlikely. Even more so, consumer demand is not bridging the excess in production capacity.

As we noted, 2020 delivered outstanding results for some pure growth managers that were heavily tilted toward quick growing but often low profitability stocks, as borne out by the graph below. It is hard to believe such results will continue given the multiple many of those stocks are now trading on, given the level of prevailing economic activity. So there may be a risk in aligning your portfolio with pure growth stocks focussed on sales acceleration, over sustainable growth and profitability.

Searching for the highest growth stocks based on sales uplift is not how Insync approaches stock selection. “We invest for longer duration than most managers, and our sustainable growth metrics are second to none. This is almost entirely due to our focus on global megatrends,” said John Lobb, Senior Portfolio Manager at Insync Funds Management.

Mr Lobb suggests that it is not purely a choice between value managers or growth managers. The decision is more nuanced than that. “There will be winners and losers from both styles, and the firms most likely to succeed long term through challenging economic times are those positioned for the long term”. Pure growth firms focussing on short term sales expansion will likely be most affected by a market correction, what went up must surely come down at some point as liquidity makes more secure stock choices.

Insync sees a bias toward robust, highly profitable businesses that are congruent with the global themes driving the accelerated changes around us will do best. In that sense investors should consider leaning toward defensive or sustainable growth and quality may be a better option given the uncertain economic times ahead.

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John has over 25 years of analytical and portfolio management experience. Previously, he had worked at Bankers Trust Australia, Citigroup Global Asset Management, Credit Suisse Global Asset Management and Orion Asset Management.

Monik Kotecha, Chief Investment Officer at Insync commented that “John has an outstanding track record and was an integral part of a successful investment team at Orion which raised and managed A$6.5 billion in funds under management.

He shares a similar philosophy to ours of investing in high quality businesses that are benefitting from global megatrends combined with the active management of downside risk.”

Monik and John agree that downside protection is becoming more critical to manage both longevity and sequential risk as the demographics profile of the Australian population is moving towards retirement.

John will be working with Monik in the management of the Global Titans portfolios.

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