Please be aware of scammers falsely impersonating Magellan employees about potential investments opportunities. Magellan does not provide personal investment advice or recommendations regarding any investment product or securities via any social media platform.
Find out more about investment scams here

Magellan Global Quarterly Update

(Please find CPD quiz below)

Key Takeaways

Download Transcript

[00:01:01] What turned out to be the things that mattered and didn't matter in the markets this past year?

2023 was marked by a fascinating economic landscape, with global equity prices soaring over 20%, primarily concentrated in a select group of companies. Notably, the companies that performed well shared characteristics of being high-quality and possessing resilient business models, factors that typically shine during periods of higher-than-average interest rates. Durable companies with a structural growth tailwind, particularly in the realm of artificial intelligence, stood out, differing significantly from the dotcom era where the focus was on acquiring new customers. The so-called "Magnificent Seven" major companies were distinguished not only by their tech prowess but also by their high quality and structural growth. Despite initial concerns about a hard landing, consensus shifted, recognising the Federal Reserve's efforts to counterbalance extensive fiscal stimulus.

[00:03:40] Insights on how investment decisions are considered in the portfolio.

Our overarching goal is to achieve 9% net compound returns over the long term while minimising the risk of permanent capital loss. This objective guides our daily decision-making process. We focus on a narrowed universe of high-quality companies to mitigate risk and ensure competitive strength, emphasising well-managed firms capable of executing effectively. Our macro-level analysis is important, considering economic, geopolitical, and political factors, along with the prevailing interest rate environment, as these factors will influence how companies invest and manage for the future. Last year, interest rates played a role in shaping our portfolio, and we recognise ongoing global trends like decarbonisation, digitisation, and de-globalisation, which have support of government policy around the world, and so align our strategy with companies well-positioned to leverage these shifts. The economic cycle brings fluctuations to profits and share prices, especially for companies that are leveraged to cycles, and so we typical own less of these cyclical exposures given we maintain a strategy with less-than-market risk. This helps us deliver the absolute compounding objective through time with less risk.

[00:07:14] Outlook on the continued value of long-term portfolio holdings

We maintain a long-term investment perspective. Looking at Microsoft as an example, despite its challenges in 2022, where cloud optimisation and slowing earnings growth impacted its performance, looking ahead, we believe Microsoft is exceptionally well-positioned, particularly in the shift towards generative AI, boasting a pre-eminent position across enterprises with widespread product usage and a network effect. While the timing of the uplift of profit impact from commercialisation of AI is uncertain—whether in 2024 or 2025—we are highly confident in the significant opportunity that lies ahead for Microsoft. Sometimes we get asked about if stocks are still worth owning when they reach all-time highs, but companies that are growing strongly and delivering good results will keep hitting all time highs and we must assess if the valuation is stretched at these times. Our commitment is to businesses with strong earnings outlooks, ensuring confidence in their ability to generate high returns and deliver value to shareholders, ultimately guiding our portfolio decisions.

[00:10:03] The outlook for 2024

Last year the focus was primarily on inflation and interest rates, but with inflation now returning to desired levels, attention shifts towards the job market and unemployment rates. The strength of the job market has been a key factor in the resilience of the global and particularly the American economy amid higher interest rates. A potential increase in unemployment could result from various factors, including lagged effects of past interest rate hikes or unforeseen events. Investors should closely monitor these dynamics as changes in the unemployment rate can influence future interest rate decisions, or potentially impact equity market returns. In response to if the US election will matter, elections always matter but it is important to understand why it matters. Potential changes in the supply chain due to trade policies, particularly with China, and labour market dynamics, such as immigration restrictions, could lead to supply shocks that may impact the global economy and investment markets. On the demand side, a clean sweep by one party in the election could lead to government stimulus and economic strength, influencing market trends, though our assessment at this early stage of the electoral cycle is that a clean sweep by either side is unlikely.

Earn 0.25 CPD hours by completing the quiz

Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 (‘Magellan’) and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation.  This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au.

Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain ‘forward-looking statements’. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.

This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material.  Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material.

Any third party trademarks contained herein are the property of their respective owners and Magellan claims no ownership in, nor any affiliation with, such trademarks.   Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan.

Insights direct to your inbox

Make sense of the global investment landscape with timely updates, articles and videos from our investment experts.

Enter your first name
Enter your last name
Provide a valid email address
Provide a valid postcode
Select type of investor