Shared LunchMake sense of the markets with Michelle Lopez, Head of Australasian Equities and Portfolio Manager at PIE Funds. Michelle talks about the ripple effects of tariffs and finding opportunities in a volatile market—identifying the emerging sectors and unexpected advantages.
Michelle tells us which industries might be more impacted by US tariffs—and which could benefit. Hear why global trade disruptions could actually lead to deflation for Aussie consumers, and how to identify promising investments that have dropped due to anxious markets.
Plus, learn how the decommissioning of Australian oil and gas wells is worth an estimated $60 billion, and gear up for potential IPOs on the ASX from Virgin and Fonterra.
For more or to watch on YouTube—check out http://linktr.ee/sharedlunch
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I wouldn't say it's panicky yet, but we're moving towards that. The market's reacting in a very real time way. This is the best time to find no stocks that have been indiscriminately sold off. I suppose the biggest call we had to make was the rules of the game changing, and the framework of investing is actually changing.
Hello and welcome to shared Lunch, brought to by Chairs's at Cheesea's. We're on a mission to create financial empowerment for everyone, and that's why these conversations are so important. It's a chance to really dig into what's going on in the world of investing and share that with everyone. Today I'm joined by Michelle Lopez of Australasian Equities and portfolio manager at five Funds, and we're going to talk about what's going on in the markets.
At the moment.
Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Before we get started, I'd like to acknowledge the Gettigal people of the or nation, the traditional custodians of the land we were coming to from today, and pay respects to elders, past, present and emerging. Hi. Michelle, thanks Heats for joining us today.
Heie, thanks for having me.
There's obviously a lot going on at the moment, but thought we'd just jumped straight in and say is now a good time to invest?
Look, it's interesting, it's an interesting time to invest, and it's probably the most unpredictable market that I've worked in, and I've seen quite a few corrections having been in the role for a couple of decas now. So the one thing I'd say is we're all feeling pretty battered and bruised to be honest at the moment, just given the volatility that we're seeing, but by no means in kind of chronic pain as such. And it's been tried and tested and proven over multiple cycles and timeframes that indeed these are the times that prove to spin off the best opportunities, particularly if you are taking a bit of a longer term view, so the next six months, who knows, particularly under the US administration that we're seeing at the moment, with all the policy changes that are coming through. So I think you do need to sort of sit back a little bit and keep calm in these type of markets and really sort of think through when the dust settles, these are the times that opportunities present themselves and money is to be made. So I think it is an interesting time. I'm not calling sort of the bottom at this point, but yeah, I think volatility is definitely our friend, particularly the way that we look at the market.
And so how how are the tariff's affecting sentiment and do you think there's any curveballs for us to watch out for? You mentioned like you wouldn't call the bottom now that, like, yeah, can you tell us a bit about that.
I think there's multiple parts to this. The very direct impact to Australia New Zealand is actually quite minimal from a relative perspective. So I think about if you think about tariffs, and for Australia, the biggest, our biggest export to the US is beef, and for context, that's about a billion dollars that we export. You compare that to iron all to China mostly being eighty five billion, So again we're relatively immune from that perspective. But you have to think about second order effects. And you mentioned sentiment, and it absolutely hits sentiment because everything you're reading, everything you're listening to, is talking about this marketing flux, trade wars, and it really does hit sentiment. We also have to think about sort of second order effects. And you know, I mentioned iron ore as a very big export for US, but behind that is LNG, so liquefied natural gas, and again that goes into our region, being Asia, but it is pegged to oil prices, so the spot the pricing of those contracts, which are long term contracts. So there are implications around what's happening more broadly to the economy here. But having said that, it also spins off opportunities because guess what, there's going to be a lot of China product hitting our market and it could actually be deflationary for the Australian consumer, which is a good thing.
How would you describe the vibe of the A six right now?
Oh, it's i wouldn't say it's panicky yet, but we're moving towards that. And every day you sort of wake up and you don't know what to expect because headlines or tweets or whatever it is, there's something new, and the market's reacting in a very real time way, and you've seen it through intra day moves being huge. So I think everyone is quite nervous. Everyone is almost skittish in a way. So that's why, actually the most difficult thing to do and the hardest decision is to just remain calm until we have a sort of a clearer line of sight of where we're heading. And you know, I think tariffs have been really well broadly broadcasted. Obviously the extent of them haven't something that's been spoken about now for months.
Yeah, you're right, Like we've seen, you know, we track and Vista sentiment through the quarters and over the last few months, like since the tariffs have been being talked about, we have noticed and Vista sentiment kind of dropping into what's called like cautious territory for us. But you know, people are still buying and knit buyers across the platform, so for you, you know, are you playing it safe or are you Are you seeing those opportunities?
Look, I think a bit of both. So we are certainly seeing opportunities. But you know, one of the things that you've got to be really aware of is, you know, yes, absolutely picking the right companies, which is our bread and butter really from the bottom up, and understanding the companies that we're investing in. In fact, the biggest downside risk, I always say, is not knowing what you're buying. Having said that, though, portfolio construction is equally important, and it's really important in this type of market that you've got a diversity of companies with very different earnings drivers, not so much sectors because sectors can be quite misleading. And why that's important is we don't know what pathway the economy will take from here, predominantly the US economy, given it's the largest, and it absolutely moves markets because that pathway is unclear. You need to have your defensive stocks, you need to have your cyclical stocks, and then you've got your growth your compounders, and they're going to each be affected in different ways. So ensuring that is in play and you're not leveraging only one scenario and going hard into that I think that's prudent. So I suppose if you want to say that's conservative. Having said that, though, this is the best time to find stocks that have been indiscriminately sold off. You know, we've got companies that are off thirty percent, forty percent, super high quality businesses with actually quite resilient earnings regardless of tariffs, that that have come off just with market sentiment. And that's your opportunity right there.
And we've seen, you know, people are sing, you know, their portfolios going down at the moment, and we're hearing you know that that can be kind of hard to see. You know, we're all human, and you know, it's hard to kind of react to that. But anything about what Invista should be doing at a time like this.
Look, I think it's a market cycle, you know, and yes, the rules of the game are changing somewhat and that's what's driving this volatility. But we will come through. We will come through this. So I suppose the one thing I would say is have a time frame in mind, and if you can't stomach losses, you know, over the next six months. You know, I'm not sure why you've been invested in the equity market, but if you've got a longer time horizon, if you've got that five year plus time horizon. Again, I always encourage people to zoom out because even in this really volatile period, if you zoom out, it almost looks like a blip. You know, we've been on a trajectory like this over the last five years, and it's a small blip. And I'm not trying to say that you've got to go all in now, That's not what I'm saying at all. I think there are some very clear risks, and as I said, the rules of the game are changing and the framework of investing is actually changing. But yeah, I think just be aware that you know, this has been three months, and you really do need when you're investing in stocks, you really do need to take a lo longer time horizon.
And you mentioned you know, you've been in this industry for years now, and you would have seen, like it's very normal that markets go up and down and respond to two changes that are happening in the wider environment. Is there anything you're observing this time or about this change versus other times we've gone through this type of volatility before.
Look, I think this one has been particularly interesting in that it's a bit self inflicted. So if I the most recent one being COVID, that was completely out of anyone's control and we had no idea sort of the extremity of the impact that was going to have, and then the one before that was probably the major one, being the GFC. Having lived through that as well, there was financial system collapse almost whereas this time round it feels like it's a little bit more man made and there could be a very clear off rap for what's playing out at the moment. And that's the difference. That there is a clear off ramp, we actually don't think that it will be taken, which makes it a little bit trickier, But yeah, that would be the difference, I would say. And the other side of it is there is quite a bit of firepower left fiscally stimulus wise that could be injected into our market if the need is there, both in Australia and New Zealand. I mean New Zealand just cut rates today as well. That they've been on that trajectory for a little while now, so there's definitely firepower that governments can sort of come out with to underpin the consumer.
And how that and the funds that you're managing, how are those tracking.
I'm responsible for the Australasian equity component of PIE, but PIE does offer a whole range of products, different asset classes and balance portfolios as well. Obviously the balanced portfolios have done much better than the pure equity portfolios. So the new term has been challenging. If you look over a longer time horizon two years, five years since inception, our funds have performed, have performed well. They've outperformed their peers and their benchmarks over a longer time horizon. But yeah, the last three months have been have been quite tough in line with markets.
And have you had to make any tough calls through that time?
I think I get to the weekend and I'm so fatigued by decision making. Just I told my family, just make decisions that you want about dinner on your own, do not involve me, Because our day to day is all about decision making and making calls on the spot with the amount of information that we've got to hand, and when that information is constantly changing, it's very difficult. So I suppose biggest call we had to make was, you know, maybe back to your question around defensiveness. We run portfolios and we've got target cash rangers, and we brought our portfolio into up to the highest sort of level of cash that we could own towards the end of you know, beginning of March, over over the March period, and that was quite tricky because the market had already fallen you know, five six seven percent, and at that point we were kind of unsure. We hadn't had the big sort of day liberation day out of the US, and we chose to lift our cash levels quite to the max limit. And that felt a little bit risk at the time because we would have not kind of kept up if the market was to rally. But it's also positioned us really well now because we're sitting on this dry powder with a lo dramatic cash that we can start investing slowly into those companies, those opportunities which you know are popping up now. So I don't know if that answers your question around a hard a hard decision, but we've got to make calls every day around that and positioning because you know, it's very difficult to predict at this point in time given all the changes. So it's all it's more about being prepared, so prepared for those different scenarios playing out and ensuring that portfolios are positioned for that.
Any're observing any changes to where money is flowing. With a result of what's going on at the moment, like often and volatile times, people might turn to gold like is that still the case or like what are you noticing there?
Yeah? Absolutely, I mean gold was the best performing asset or sect or asset class or whatever you want, whatever it's categorized as in March, god was up thirteen percent. The rest of the market was down, you know, five percent, call it thereabouts. So it's definitely held its status as a safe a safe haven, you know, I think a bit more longer, longer dated. Though, There's been lots of different asset classes that have really attracted a lot of asset flow. And you know, private debt is one of those. You know, cryptocurrency is another one that's gotten a lot of attention and starting to see and started to say over you know, the last twelve eighteen months, institutional buying as well, not just retail. So yeah, there's there's been a number, but I'd say defensives at the moment gold cash, that's you've certainly seen shift shifting to that, but that's that's kind of normal. I think there's nothing that's screaming people are panicking in any way. It's just upheld its status as gold. And you know, it's a big one for for the Australia market in particular because the benchmarks that we're running our funds too, which is mostly the small ordinaries, twelve percent of that benchmarker goal producers. So it's a big part of our market and it's it's held, it's held itself.
How about any other rare earth minerals.
Well, rarest is interesting, right because China's just come out and banned all exports to the US. Why that's a big deal is they represent something like seventy percent of the rare earth's market and rareer actually are strategically important because they go into the manufacture of a lot of these core you know, high tech products as well as renewables and even defense. So it's it's actually a really important factor. And there's a couple there's actually a couple of ASX listed companies that are probably now looking a bit more attractive, and Linus is one of one of those companies. We don't own Linus in the portfolios, but they're mount world asset in w A. They're one of the world's highest quality as rare Earth's mine outside of China and one of the largest at scale. So I think there's that will probably be a beneficiary of what's happening from a China closing their export market to the US. And then you've got a lot of more speculative names in our market as well. You've got a Referra Northern Minerals I think is one of them as well Linden Resources. So there's a couple of real specky names in there, but probably not part of the market that we're playing in. We take the steardship of our client's capital very seriously, so again we've got to understand sort of the risk and for me, that part of the markets is quite speculative, so we tend to avoid it.
And how about as we love to areas of growth or innovation, like, is there anything that you're noticing popping up there?
Oh, look, there's the usual stuff that you can hear about every day around AI or healthcare and gene therapies. But you know, yesterday actually I came across a really interesting article and it was an industry piece around decommissioning of a number of these oil and gas wells in the basin for Australia and the Western Australian Basin, and you wouldn't believe it. I didn't believe it anyway. There's about sixty three billion dollars worth of work to be executed decommissioning these wells. There's a thousand wells that need to be decommissioned over the next thirty years starting now. That has to be done in a safe and environmentally friendly way. And Australia has taken a lot of learnings of issues that have happened offshore, so they've put a lot of emphasis on doing this in an effective and safe way. So I actually think this is going to be a really interesting space. It's nascent at the moment. No one's talking about it. So for me and again just trying to understand who are the players in this market.
The space being the decommissioning or that the decommissioning.
So think about everything from going out to these offshore rigs. The worlds have been plugged out, plugged up, sorry, so they're no longer flowing from a gas or oil perspective, and how do you remove that infrastructure in a way and get rid of it. So we've got you know, recycling companies clean Away as an example, that are playing in a very small part of that market, but given the sheer amount of work coming through. So yeah, that's that's kind of a growth industry that I think there should be some key beneficiaries of that. So when I come across something like that, I look for, Okay, so are there any barriers to entry, any licensing requirements that are required, what companies hold those licenses? And then the skilled labor you know, this is very highly skilled who has that sort of labor pool that can execute on these type of contracts. So that's an area that just caught my interest. So I was like, well, that's something I haven't even heard about, So I'll probably be delving to that in a bit more detail and see who the natural players are.
Yeah, it's fascinating because you kind of think of like growth and innovation being producing something new, oras this is like, this is the almost the opposite. It's like, how too, It's at.
The other end of something, but it's and that's the thing.
It's so important and obviously huge health and safety impact.
Absolutely, And you're spot on. Innovation isn't just new, it's also you know, a whole topic around innovation. But you know these microphones as an example, the amount that probably innovation that needs to go into that. And who's got the ip who's got the patent around whatever? Property is like it's it's it's everywhere, and if you're not, if you're not thinking about it, then you'll be left behind.
And how about any exciting new companies? Are there any standouts in particular?
We've had very little new companies come to market unfortunately, so there's no new kind of IPOs as such. We had a few at the end of last year.
Why is that?
So we had similar coscale? There was a couple the problem. The problem with IPOs is you need pretty buoyant market conditions for them to be successful, and then investors also want to see success post IPO, and unfortunately that hasn't played out for the ones that came broadly came to market last year. There's a couple of things there. You know, liquidity, particularly in the sort of small end of the market is really important. And when you're going down kind of the market cap range and sort of the risk increases, you want to make sure that new capital being allocated there's a risk reward trade off there, so that hasn't played out. Now we've got heightened market uncertainty. No company wants to come an I p O when there is investor. You need investor appetite to step in right and not just IPO but sustain a post post listing. And then maybe venture capital are still quite willing to provide to provide capital into into the businesses. So I think that's it's kind of a combination of all but there are two that have been sort of flagged meaningful ones being Virgin looks like that. I'm not sure if it's still coming to market after what's playing out, but that certainly has been flagged. And then close to home as well, New Zealand Fonterra are looking to it's a dual track process of a trade sale but also IPO the consumer part of the business as well. So they're probably the two main ones that I know of in the pipeline. But it has dried up and that's that's not a good reflection, I suppose, because you want a real vibrant market and IPOs are typically important because it attracts new capital, and we given our specialty and our niche in small in small caps, it's been a big part of how we've invested in the past.
And so I guess we'll just kind of start to wrap up now. But wondering if there's any any message you've got to investors at the moment and how to kind of move through these times.
Look, I think there's a famous quote that's probably been rewritten a number of times and different people adding their own little way spin to it. But you know, I always think back to investing as a business is actually the only business that when it goes on sale, which is kind of what we're seeing now, that people run for the doors. And again coming back to time frames and coming back to understanding what downside risk is, and downside risk is not knowing what you're buying if you do the analysis and you understand what the risk of those earnings are. I think these are the times that the opportunities present themselves. And sure it takes courage, but it's been proven time and time again. So take advantage of the sale. I suppose if you've got that time horizon, Yeah.
Hey, thanks so much. Michelle, I really appreciate our chat today. It's pleasure, it good to be here, and thanks everyone for tuning in. You can watch Shared Lunch on YouTube or follow along on your favorite podcast at Leave a comment or follow us and tell us what you'd like to hear about next
