Below are notes from a recent question and answer Zoom meeting with Hamish Douglas, who is the joint founder of Magellan Funds based in Sydney.
Comments on the US election.
The key is what happens in the senate. Currently there are 100 seats in the senate, 53 Republican and 47 Democrats. 50 is enough to have a majority. The key states are Colorado, Arizona, Iowa, Maine and North Carolina. To enact law you need go under the Phillibuster clause, however the Democrats could get around this by changing the senate rules. Markets would be more concerned if this happens. It’s unlikely that the radical left will come in. Markets though will be volatile the month after the election results.
Holistically there is no change to the Magellan portfolio. Hamish is a little bit optimistic but cautions. There will be a big stimulus bill out of the Democrats, in the order of US$1.6T. Interest rates will remain low and the Corporate tax rate will increase from 21% to 28%. In this event Magellan will own less US companies. Joe Biden is keen on de-carbonisation. There is strong growth in Chinese consumption. Companies benefitting from this include Tencent and Alibaba.
ANT Financial which is soon to be spun out of Alibaba will have a valuation of US$300B. It will have 3 main business platforms.
The share market is reflecting the low interest rates and a vaccine. Never be surprised by markets. It is expected that low inflation will be around for an extended period of time. This is driven by global excess capacity and changes to demographics. This doesn’t mean we will always have low inflation. Hamish is not worried about inflation over the next 5 years.
The future looks like a low growth, low income environment, so one has to be very selective about what stocks to own.
A question was asked about the FAANG (Facebook, Amazon, Apple, Netflix and Google) and BAT (Baidu, Alibaba and Tencent) stocks.
These companies are highly advantaged and have powerful business models. They are light in capital usage and are global players in E-Commerce. Cloud computing, streaming and advertising. All of these companies are extraordinary in their own way. The risk is what are they worth. That said the risks are very visible and one is in a solid position to evaluate the risk.
Magellan are still comfortable with these companies moving forward. It is expected that with low growth, going forward equity returns will be lower. A concentrated portfolio will produce greater returns rather than markets. The key will be investing in the right businesses with good long-term prospects. Remember wealth is built on compounding which happens over time.