One of the fascinating parts of the Wilson Asset Management investor call this week was hearing the titbits picked up the group’s fund managers in recent weeks, particularly about the state of the US and Chinese economies.
WAM founder Geoff Wilson said the addition of the WAM Global fund earlier this year, led by portfolio manager Catriona Burns, has seen a flood of new information and data flow into the business, which is also helping its domestically focused stock pickers.
WAM chief investment officer Chris Stott, back from a big investment conference in Hong Kong, had some cracking little factoids, including that Chinese gym membership has doubled in recent years, and credit card fraud has jumped five-fold in the last three years.
But of more importance was his intelligence on the Chinese economy, which he says started slowing in May as the trade war with the US kicked in.
Most pundits expect GDP growth will run in the low 6 per cent range, with the trade tensions to knock around 0.5 per cent off GDP growth.
“In our option it’s hard to see the trade wars coming to a resolution soon,” Stott says. “We think this could drag out. It’s something we’re going to watch very, very closely over the next one to two years.”
Stott got the chance to meet former Central Intelligence Agency chief John Brennan on the sidelines of the conference – he was spectacularly stripped of his security clearance by President Donald Trump in August – and said there were a few key political events to watch.
The major one is the midterm elections in November. Brennan’s view is that the Democrats win the House of Representatives, but they won’t get control of the Senate despite a much better showing.
The other event is the release of Robert Mueller’s report into foreign interference in the 2016 presidential election. That could provide a catalyst for the impeachment of Trump – an event that Stott believes would be bad for markets.
Burns was fresh from watching former Federal Reserve chair Janet Yellen speak at a conference in Canada.
Yellen’s message was that 2019 should be strong, as the benefits of US tax reform continue to flow through the system. The Fed will continue to raise rates over this period, she said.
But heading into 2020, the outlook becomes more cloudy, as higher interest rates start to weigh on the US economy.
Burns is also hunting for ways to avoid the trade wars in her portfolio.
“We are trying to add names more domestically focused and are less impacted by trade wars more generally.”
Geoff Wilson has long expressed concern about the looming end to Wall Street’s seemingly endless bull market, and he did so again on the investor call, where he joked a record number of attendees could be another sign of the top of the market.
“We can only give general advice, there’s a disclaimer somewhere,” Wilson said.
“That general advice would be: Make sure you have some cash.”
To reinforce the point, the WAM team said that within 90 days, 88 per cent of the WAM Capital portfolio could move to cash. At WAM Leaders, it could be 100 per cent cash in 90 days, while for WAM’s micro cap fund, 86 per cent of the portfolio could be in cash in 90 days.