NAOS CEO Insights Week Ending 21/10/2016

“You see the cyclical stocks kicking hard against the average. You saw the gold price drop hard, the predictable selling-off and the bonds selling off — (they’re) pretty strong signals of change” Kerr Nielson, Founder, Platinum Asset Management

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.

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Financial Markets

“If you want to be a successful investor, you look for things that are obvious but not apparent.  You have companies where there's some unique quality that isn’t apparent that you buy.  Sometimes it takes years and years and years”

Carl Icahn, Founder, Icahn Enterprises

“You see the cyclical stocks kicking hard against the average. You saw the gold price drop hard, the predictable selling-off and the bonds selling off — (they’re) pretty strong signals of change”

Kerr Nielson, Founder, Platinum Asset Management

“[Low interest rates] have made the asset owners richer, it hasn't necessarily made the real economy go faster and it has created greater risks. It's not a great thing at all”

Sir Michael Hintze, Founder, CQS Investment Management

“We're pretty light in the stock market right now and we have a lot of cash.  We're probably more positioned in the bond market right now. I just don't see the market having the ability to move up that much.  I think the upside/downside is not the most favourable I've seen. It's not a great environment”

David Tepper, Founder, Appaloosa Management

“A lot of S&P companies are way overvalued considering the risk premium”

Carl Icahn, Founder, Icahn Enterprises

“As investment managers, we’re all trying for alpha. With technology, we don’t get paid for knowledge anymore because knowledge is everywhere, we now get paid for imagination”

Sir Michael Hintze, Founder, CQS Investment Management

Oil & Gas

“The cost of oil is not driven by OPEC anymore, it's driven by marginal demand and supply”

Sir Michael Hintze, Founder, CQS Investment Management

"We remain steadfast in our belief that significant activity increases from our customers starts with sustainable commodity prices over $50 per barrel, which we haven't seen in any meaningful way yet since the rig count activity bottomed out"

David Lesar, CEO, Halliburton

“But, that being said, it does not change our view that things are getting better for us and our customers”

David Lesar, CEO, Halliburton

“We are at the end of a considerable downturn… The fundamentals are improving and the market is rebalancing”

Khalid al-Falih, Energy Minister, Saudi Arabia

“Investments are back. But it’s only going to be the very best”

Bob Dudley, CEO, BP

“If $100 was too high for the world, $50 is too low for the industry. It will have to be somewhere in between”

John Hess, CEO, Hess Corporation

Housing

"There is no oversupply. Why? Because the rents are not going down. There will be oversupply when rents are going down"

Harry Triguboff, Founder, Meriton

“Prices seem to be increasing quite briskly again in some areas, although are falling in others. Growth in rents is very low and there is a big increase in housing supply sill to come”

Dr Phillip Lowe, Governor, RBA

"Personally I am full of confidence because I don't believe interest rates will go up”

Harry Triguboff, Founder, Meriton

Commodities

“We do see solid demand for pricing to continue along these lines. Certainly, the Chinese supply side reform has been welcomed and that, in our view, has accelerated some tension in supply/demand, which we probably saw emerging early calendar 2017 rather than six months ahead of schedule, which is what it's done”

Paul Flynn, MD, Whitehaven Coal

“We have seen early signs of markets rebalancing. Fundamentals suggest both oil and gas markets will improve over the next 12 to 18 months. Iron ore and metallurgical coal prices have been stronger than expected, although we continue to expect supply to grow more quickly than demand in the near term”

Andrew Mackenzie, CEO, BHP

 

 

Cloud

“We are becoming a total cloud business and the demand is so great that we can’t keep up with it. Our cloud is selling itself and we don’t even have our foot on the accelerator because it puts a big demand on the rest of our business”

Adrian Di Marco, CEO, Technology One

“The widespread adoption of cloud computing is important, yet it is just a piece of a larger picture that we see coming into focus. Throughout history, technological disruptions have followed similar trajectories: 20 years of technological disruption followed by 30 years of further rapid change as new technologies are applied throughout society. The internet revolution is a historical inflection point, much like when electricity was introduced, and it may have an even greater impact. Over the next 30 years, with computing power as the new “technology breakthrough” and data as the new “natural resource” the landscape of retail, financial services, manufacturing and entertainment will be transformed”

Jack Ma, Founder, Alibaba

“Cloud hosting providers are going to disappear in the next 10 years. I don’t think they are a long-term viable business, the big infrastructure suppliers (AWS, Microsoft Azure) they will be there and they will be like the electricity generators that power this second industrial revolution. If you are not into mass production, if you are not into software as a service, then you don’t have a future, hosting providers can't come close to the economies of scale that we provide”

Adrian Di Marco, CEO, Technology One

Television

“I think the general trend is the world is embracing Internet television, and we're riding on a very strong kind of tailwind of technological change, and that is definitely intact”

David Wells, CFO, Netflix

“While television remains the dominant medium for Australians, we recognize that people's viewing habits are changing. We recognize that almost a decade ago when we started introducing new digital services that gave people the ability to watch and engage with their content on connected devices"

Paul Anderson, CEO, Ten Network

“We generally think of the growth of Internet TV like the growth of the mobile phone. That is, fixed line telephony was an amazing invention, which developed over 100 years and provided incredible benefits to society. The same things are true with linear TV. It's been an amazing innovation but the age of linear is starting to fade and it will be replaced by the Internet"

Wilmont Reed Hastings, Co-Founder, Netflix

“Increased competition from untaxed and unregulated providers is bringing major challenges… In order to continue investing billions in a strong Australian voice on screen, this sector urgently needs a significant reduction in television licence fees”

Paul Anderson, CEO, Ten Network

“The advertising market remains extremely short in terms of forward bookings”

Paul Anderson, CEO, Ten Network

Technology

“We continue to see strong momentum in digital banking adoption with use across service, appointments, and sales. Mobile banking is transforming how our customers bank and reshaping our Consumer segment. Importantly, as adoption rises, particularly around transaction processing and self-service, we see improved efficiency and customer satisfaction”

Paul M. Donofrio, CFO, Bank of America

“Our traditional e-commerce business is already undergoing rapid change and progress. In the coming years, we anticipate the birth of a re-imagined retail industry driven by the integration of online, offline, logistics and data across a single value chain. With e-commerce itself rapidly becoming a “traditional business” pure e-commerce players will soon face tremendous challenges.

Jack Ma, Founder, Alibaba

“Open markets and advances in technology mean that more businesses feel that if they put their prices up, they will not only lose market share to domestic competitors but to foreign competitors as well. Many workers have a similar feeling”

Dr Phillip Lowe, Governor, RBA

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About NAOS Asset Management

NAOS provides investors with niche product offerings in asset classes and sub sectors where they lack the time, resources or expertise to research and invest themselves. We adopt a high conviction, value driven, long/short approach to investing. Our investment approach looks to realise value over the long term by sourcing and combining investment opportunities that present the greatest opportunity to realise positive absolute returns in the form of capital growth and income generation over the long term.

NAOS Emerging Opportunities Company Limited's (ASX: NCC) objective is to provide investors with concentrated exposure to quality undervalued emerging companies, whilst maintaining a focus on long term capital protection.

NAOS Absolute Opportunities Company Limited's (ASX: NAC)  objective is to provide investors with exposure to quality undervalued mid-cap companies whilst having the ability to selectively short overvalued lower quality companies, this aims to minimise the risk of permanent capital loss and produce uncorrelated returns to general market movements over the long term.

In addition, the emerging opportunities strategy is available to sophisticated investors via a unit trust, The NAOS Emerging Opportunities Fund.

For all enquiries please contact enquiries@naos.com.au

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