Market Commentary
Global markets tumbled over the quarter triggered by the COVID19 pandemic. The outbreak has resulted in the fastest ever Australian stock market crash in history, with the ASX200 index falling near 40% in four weeks from its peak on the 20th of February.
The rapid emergence of the health crisis has caused significant dislocation in the Australian market and will have far reaching economic consequences. To slow the infection rate of the virus widespread parts of the Australian economy have been closed virtually overnight with early estimates placing unemployment near Global Financial Crisis levels. The Australian Government responded with significant support packages and the Reserve Bank of Australia has cut interest rates to record lows to soften the economic fallout of COVID19.
Portfolio Positioning
On the Australian Sharemarket companies have removed guidance, suspended or cut dividends and are raising capital at discounted prices. We believe this will continue for some time. To that end in recent years we have been looking to diversify portfolios with assets that have more certain earnings to prepare portfolios for a time such as we are currently experiencing. We have selectively introduced listed and unlisted credit exposures to portfolios which has served to protect capital by dampening downside volatility. We have taken the opportunity to speak with the managers of these holdings who have reaffirmed our confidence, and each has reported no losses or defaults to date.
With fear arcing though Global markets the principles of Limberg Asset Management have always been and remain to focus on fundamentals and identify quality businesses, management and prospects to weather all investment cycles.
Governments Economic Response
The Governments economic response to the COVID-19 pandemic includes support for households and businesses. These changes have been legislated and may impact on the strategy for some investment portfolios.
The summary of the Governments economic response is detailed as follows.
- Pension minimum drawdowns
These have been reduced by 50% for financial years 19/20 and 20/21. This will allow pension accounts to preserve capital depending on their ability to meet ongoing living costs. For clients in pension phase we will discuss this option with you.
- $750 economic support payments
The Government is providing two separate payments of $750 for individuals that on social security payments this includes the Aged Pension.
- Early access to superannuation
Individuals that have are unemployed can access $10,000 this financial year and $10,000 next financial year. We would suggest that this be used as a last resort option for individuals that are struggling to meet expenses.
- Job seeker payments
Payment plan for unemployed persons implemented via Centrelink
- Job keeper payments
This payment is effectively a wage subsidy paid to employers who retain eligible employees and pay them at least $1,500 per fortnight.
Please find attached a link to each of the publications providing detailed information on the Government stimulus packages published by Colonial First State.
CFS First Tech – Government Economic Response 30 march 2020
CFS First Tech – Coronavirus $750 claim by 14 April 2020
CFS First Tech – JobKeeper Payment
Limberg Asset Management
The team at Limberg Asset Management continue to monitor the developing situation closely. Unfortunately, what started as a quarter with high expectations of strong returns was rocked by the COVID-19 pandemic. This resulted in companies that were delivering strong return to be revalued due to market fear. We have been liaising with listed and unlisted investment providers in the investment strategies constantly for updates and guidance on how they are managing through these difficult times. We are assessing investment opportunities and looking to identify quality companies that will navigate these current market conditions and come through this in a strong position. This provides us with an opportunity to include quality companies into the investment strategy that were previously considered too expensive when appropriate.
We will reach out to you after the Easter break to discuss the specific investments and strategy for your investment portfolio. In the meantime, we are always available to you as needed.
Currently we are continuing to work from the office in MLC Centre at Martin Place however, our lease will expire on 30th April when we will relocate to an office in Lane Cove from the 1st May. We will forward details of the office address and contact details towards the end of the month. Until then we can be reached on the usual phone lines and emails. We can also arrange to hold meetings over Zoom, FaceTime or any other communication platform.
Limberg Asset Management Office GPO Box 5221 Sydney NSW 2001
Terry Limberg 02 9232 2079 terry@limberg.com.au
Chris Limberg 0412 983 490 chris@limberg.com.au
Kieran Limberg 0439 660 110 kieran@limberg.com.au
Please do not hesitate to contact us if you have any questions or concerns.
Keep well and stay safe.
Company Appendix
Below are comments on companies that we have maintained positions in through the current market crisis and some information on how they are managing through the current market conditions:
Macquarie Group Limited – MQG
- MQG emerged from the GFC to build a formidable asset management group over the past 10 years
- The company has evolved and diversified into an asset management, finance, bank and advisory group with 60% of the revenue is now generated by annuity style functions
- Has management continuity and strong balance sheet
Macquarie Group 2020 Operational Briefing
Dubber Corporation Limited (DUB)
- Has developed as a Software as a Service (SAAS) provider to the teleco industry for call recording and A.I. analysis
- The SAAS model has been incorporated by CISCO into its existing operating software. CISCO are the largest networking company in the world
- Has signed some of the largest telco operators to offer the call recording service. Including: Sprint, Verizon, Telstra, Optus and Vodafone
- On the 1st April came to the market to raise funds and was overwhelmed by demand. The final acceptance amount was $10 million which was a third of the demand amount.
Dubber – Market update 27 March 2020
Dubber Unaffected by COVID-19 13 March 2020
Moelis Australia Limited (MOE)
- Moelis Australia has evolved from a corporate advisory firm to an asset management group with significant inflow of funds from Chinese nationals looking to invest in Australia
- The recent update highlights:
- Strong balance sheet with $110 million cash
- Operational cash flow
- A strong management team who experienced the GFC
- The company has grown the asset management business over 10 years to now annuity style revenues
Moelis Aust Covid-19 Market Update 3 April 2020
Wisr Ltd (WZR)
WZR is a provider of unsecured loans using fintech to service the customer through their financial wellness platform
- The company recently raised $36.5 million in January 2020.
- Secured $200 million lending facility with NAB in October 2019
- As of recent days loan originations were still strong
- The company has advised that in February it increased its criteria for loan assessment
WZR half year business update 27 February 2020
WZR March business update 17 March 2020
Listed Income Trust Securities
Metric Credit Partners
- Metric Credit Partners Master Income Trust (MXT)
- Metric Credit Partners Income Opportunities Trust (MOT)
The managers of MXT and MOT funds have reiterated:
- The net asset value (NAV) of the funds has not changed i.e. approx. $2.00
- Loans in the portfolio continue to perform
- Interest will continue to be paid monthly
MXT quaraterly update 2 April 2020
MOT quarterly update 2 April 2020
KKR Credit Income Fund (KKC)
Provided an update on 1st April 2020, where they stated there is no issue with the loans within the fund. The fund has experienced no defaults with 92% of the fund in senior secured debt. As a manager KKR manages $75 billion in credit assets with significant resources to manage the fund through the current economic challenges. We believe that actions and experience of the KKR management team will allow in time this investment to recover.