The new financial year carries with it some significant challenges. How will the world cope with the continued evolution of Covid?
Are equity-market valuations significantly overextended? Is inflation coming and are interest rates on the rise? With investing there is never certainty.
I like the old saying: “a bull market climbs a wall of worry”. What I have found with successful investing over the years is you need to do the dedicated research, obtain the best information, think the clearest, work against your emotions, and be patient. You can either do this yourself or find the best fund managers to do it for you.
That is what we have assembled in two companies listed on the ASX – Future Generation Australia (ASX: FGX) and Future Generation Global (ASX: FGG).
The 2021 financial year presented us with dramatic health impacts, enormous social disruption, and, given fiscal and monetary support, exceptional equity-market performance.
While the spread of the Delta variant has returned the Australian economy to a standstill, the reappearance of economic growth and the unwinding of emergency support settings will drive a different composition in equity markets’ returns to last year even as long-term structural trends, such as automation, digitalisation and e-commerce adoption, health and wellness investment and decarbonisation continue to advance.
Benefits of active funds
In financial markets, the active fund managers’ role is to direct investor capital towards the most compelling opportunities, selecting and backing the management teams best placed to execute these strategies.
After four decades of investing, I believe the best information wins. Retail investors can improve their chance of market-beating returns by backing fund managers that have outperformed their benchmarks over time.
The Future Generation companies provide shareholders with exposure to 27 high-quality Australian and global fund managers, including Magellan, Paradice, Cooper, and Caledonia, selected by highly experienced investment committees.
These fund managers have consistently reported strong performance and have extensive experience managing capital through various market cycles and conditions. Investing in equities involves inherent risks to capital.
Diversification is a key strategy in reducing risk. By combining many investment managers with complementary strategies, the Future Generation investment portfolios have delivered solid investment returns with lower volatility than that of the market.
Importantly, the allocation to the managers employing absolute-bias strategies has provided the investment portfolios with downside protection, ensuring they have declined less frequently and with less gravity when the market falls.
Capital protection and reduced volatility are important considerations for investors focused on income. Future Generation Australia and Future Generation Global both announced increased fully franked dividends last week.
Making a difference
Investors are increasingly seeking greater impact in their investment allocations, looking beyond financial returns and towards social good. Improving the mental health of young people was the primary unresolved social issue before the emergence of Covid and lockdowns burdened Australia with a shadow pandemic of mental ill-health.
Meeting this challenge requires urgent and significant investment. Future Generation’s fund managers manage more than $1 billion on a pro bono basis, forgoing fees to allow an annual social investment equal to 1% of assets each year.
The total social investment since inception in 2014 is $52.9 million and this year the companies are on track to donate a record $11.7 million to charities focused on youth at risk and youth mental health.
I am incredibly thankful to all who support Future Generation for enabling significant investment in the lives of young Australians. As a committed value investor, it is important to me to highlight the savings to shareholders of $73.5 million from fees and other expenses forgone since inception.