As the end of the financial year approached, I spent some time looking back at the position of the world and this country at the beginning of the financial year. On 1 July 2020, the following was happening:
- The first wave COVID-19 disasters had swamped the UK, USA, Italy and many other countries;
- Fortress Australia was in place and our first wave had been controlled;
- A COVID-19 vaccine seemed a distant hope – perhaps for 2022 or 2023;
- The ASX was stuttering back after a March rout;
- Close to 3.5 million Australians were being supported by Jobkeeper, following the loss of somewhere between 1 and 2 million jobs;
- Property markets were flat;
- All Australian governments were putting on a united front (remember that!); and
- There was significant pessimism about near-term economic performance of the economy.
We were yet to face devastating second and third waves of the pandemic globally and the scary spectre of the removal of Jobkeeper support after September.
As astonishing as the pandemic was in its impact and consequences, the ‘snap back’ has been equally astonishing, with significant winners and losers along the way.
My hope for this coming year is that short-term survival behaviour gives way to long-term strategy and vision, both for individuals, corporations and countries. Whilst they may appear at times to have been suspended, the fundamentals of economics, politics and the social contract have not gone away. We best recognise this sooner rather than later.
2021-2022 Financial Year: What’s next?
Since completing our latest investment trust Natgen Investment Trust KT21 at the beginning of May this year (only 2 months ago), we have been fielding constant queries about when and what is next for Natgen and it’s investors.
The constant (and truthful) response is that we are diligently seeking new opportunities for our investors which accord to the immutable principles of the Natgen Investment Philosophy.
Markets are hot right now – some might say behaving irrationally. Experience tells us that value remains available in these times, but one must seek it out in a careful, sober and meticulous manner. It is a time where we get to demonstrate our values, for whilst it would be better for us (as a company) to take on as many new transactions as possible, this would not be in the best interests of our investors, who rely on us to provide thought leadership in terms of where value and growth can be found. Our long term survival and prosperity will come from demonstrating that we live our values and continue to put investor’s interests first. After all, this is the fundamental tenet of a fiduciary relationship – always has been, always will be.
Don’t worry – when we find value passing a transaction through our due diligence processes, you will be informed and be invited to participate. In every case, we ask you to challenge us to explain to you our underlying value proposition for the transaction. Our philosophy and processes ensure that we will have a good answer to that question.
Interest rates and their future impacts
The low interest rate environment that we currently enjoy has presented threats and opportunities across the economy. In particular, it has impacted prices of residential property substantially and commercial property also, but to a lesser extent.
But interest rates will not stay stagnant forever, and logic suggests that the next movements will be up. Thus, we are constantly focussing on interest rate risk management in all transactions we are considering. It is not sufficient to predict that rates will remain where they are for term of a trust. We at Natgen are seeking regular (at least monthly and often weekly) briefings from our preferred debt providers and adjusting our interest rate considerations accordingly.
Ultimately, no-one actually knows where or when rate movements will occur. What we can do, however, is take a well-informed, risk-managed position on interest rates and manage our portfolio and future transactions accordingly.
I wish you well for the year ahead.