Revisiting a low growth, low interest rate, low inflation world post COVID-19
Webinar & Q&A
Hosted by Managing Director and Chief Investment Officer, Mark Arnold,
and Deputy Chief Investment Officer, Jason Orthman
High levels of inflation increase uncertainty for both consumers and businesses. High inflation is particularly damaging for holders of long-term bonds. This is because the return of the bond is locked in at the time of purchase and a sustained increase in inflation will result in the real (inflation adjusted) returns declining. Equity holders are generally in a better position because businesses have some potential to lift the prices they charge customers to help protect the real value of their revenue streams. However, there will be many businesses that cannot pass on the cost of inflation and maintain their revenue in real terms.
If our views on inflation turnout to be incorrect, then we believe that allocating capital to high quality businesses that have pricing power and high levels of structural growth will help protect against sustained high inflation levels. Most businesses operate in a competitive industry structure and do not have the value proposition to sustainably increase (relative) prices to consumers. This means the average company’s real earnings power will decline relative to our portfolios.
During our webinar, Hyperion Asset Management’s Mark Arnold and Jason Orthman discussed a wide range of issues including:
- Our short- and long-term outlooks for inflation and interest rates
- Why sustained changes in bond yields and discount rates have a one-off impact on valuations
- Whether growth stocks are overvalued from the recent surge in inflation and long-term interest rates
- The additional structural headwinds impacting companies globally
- How Hyperion identifies modern businesses with strong value propositions that can grow revenues and profits organically, regardless of changes in inflation
- Examples of companies with strong pricing power in an inflationary environment
Inflation is something we think deeply about at Hyperion because long-term stock prices are determined by “real” (inflation adjusted) free cash flow expectations and the relative risk associated with those future cash flows.
Inflation has picked up in the US over recent months, but this is likely to be temporary because it is being driven by strong demand from the cyclical recovery from the COVID-19 economic downturn.
Long-term government bond yields are largely determined by expectations for real economic growth and inflation. Long dated government bond yields have increased over the past year as the economic outlook has improved and inflation expectations have increased. Recently the 10-year US bond yield has risen sharply and is now approximately 1.60% compared to a low of 0.50% last year. It is worth noting that this yield is still considerably lower than the average since the GFC of approximately 2.3%.
Technology innovation and disruption is by its very nature deflationary because it results in better products at lower prices. We believe the world is facing a very high level of innovation and disruption over the next decade. In addition, aggregate demand growth is likely to stay subdued in the long term because of high debt levels, ageing populations, lower population growth rates, rising wealth inequality/hollowing out of the middle class and environmental constraints and disruption.
For the reasons outlined above, we continue to believe that any pickup in inflation over the next year is temporary and unlikely to be sustained over the long-term.
This webinar is your opportunity to hear from some of the most highly respected investment experts in Australia, who have performed through both rising and falling inflation environments and are well-positioned to continue to deliver outperformance over the long term for investors.
If you have a family member or friend who you think would also be interested, please forward this invitation to them.
This webinar is aimed at sophisticated investors looking to learn directly from Hyperion Asset Management’s investment specialists. It is educational only.
Industry recognised performance
2021 Awards
Our greatest motivation comes from delivering out-performance to our clients but in the pursuit of that we are honoured to be acknowledged with a handful of industry awards. To see all of Hyperion Asset Management’s awards and rating, click here.
Hyperion Asset Management has been awarded:
- Overall Fund Manager of the Year in Australia
- Fund Manager of the Year, Domestic Equities – Large Cap
- Fund Manager of the Year, Domestic Equities – Small Cap
Hyperion Asset Management has been awarded:
- Money Management’s Fund Manager of the Year Awards – 2021 Fund Manager of the Year – Winner – 2021
Best of the Best Awards 2021
- Best Australian Share Fund – Winner
(Hyperion Australian Growth Companies Fund)
About Hyperion Asset Management
Hyperion Asset Management has a 25 year track record of delivering long-term outperformance to clients through investing in high quality equities. We currently manage more than $10 billion for institutional and high net worth clients.
Our primary objective is to protect and grow your capital investment over the long-term through our philosophy of investing in the highest quality structural growth businesses. Our portfolios tend to perform best in low growth and/or decelerating economic environments. We expect our portfolios to produce double digit organic sales and EPS growth over the next ten years compared with the key stock markets that are dominated by old world businesses that will likely be stuck in a very low single digit growth range.
Disclaimer
All funds are issued by Pinnacle Fund Services Limited “Pinnacle” (ABN 29 082 494 362 AFSL 238 371). Pinnacle is not licensed to provide financial product advice. Hyperion Asset Management Limited “Hyperion” (ABN 80 080 135 897 AFSL 238 380), is the investment manager of the Fund.
Any opinions or forecasts reflect the judgment and assumptions of Hyperion and its representatives on the basis of information at the date of publication and may later change without notice. Any projections contained in this document are estimates only and may not be realised in the future. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Hyperion. Past performance is for illustrative purposes only and is not indicative of future performance.
The Product Disclosure Statement (‘PDS’) of the Fund(s) is available at https://www.hyperion.com.au/. Any potential investor should consider the relevant PDS before deciding whether to acquire, or continue to hold units in, a fund. The information in this communication has been prepared without taking account of any person’s objectives, financial situation or needs and is not intended as a recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. A financial adviser should be consulted before making any investment decision. This communication may contain the trade names or trademarks of various third parties, and if so, any such use is solely for illustrative purposes only. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with, endorsement by, or association of any kind between them and Hyperion. Pinnacle and Hyperion believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Hyperion and Pinnacle disclaims all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.
© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘class service’ have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser.
© 2021 FE Money Management. all rights reserved. the information, data, analyses, and opinions contained herein (1) include the proprietary information of FE Money Management (2) may not be copied or redistributed (3) do not constitute investment advice offered by FE Money Management (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security (5) are not warranted to be correct, complete, or accurate. FE Money Management shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use. FE Money Management does not guarantee that a fund will perform in line with its Fund Manager of the Year award as it reflects past performance only. Likewise, the Fund Manager of the Year award should not be any sort of guarantee or assessment of the creditworthiness of a fund or of its underlying securities and should not be used as the sole basis for making any investment decision.
