Eric Johnston, The Australian Business Review
If the US slows down more severely than expected, there is room once again for a return of the ‘Fed put’, says Nikki Thomas a long-time stockpicker at Magellan Financial.
That’s the reference to the tendency of former US Federal Reserve boss Alan Greenspan to use the cash rate lever to cushion shocks to market and the economy.
Thomas isn’t ruling out a technical recession in the US, although anything deeper would have to be a significant deterioration. But with the cash rate there up to as much as 5.5 per cent “the Fed put is back in place”.
Thomas was speaking on the Future Generation’s latest Investing for impact podcast series, with a new episode released this week.
“We’re going to see rate cuts. We’ve got inflation coming down. If economic growth deteriorates too quickly, the Fed will be on the cutting front,” she says.
“They will drop away quantitative tightening; we will get the stimulus that always takes a while. But people should be reasonably relaxed that the tools are there if things started to deteriorate really badly.”
Depending on the data, if the US does hit a technical recession it will be mild downturn, she believes.
Magellan has been a long-termer hold of US names like Visa and MasterCard, McDonalds and even Yum Brands (owner of KFC in the US). It is the long-term exposure to tech names like Amazon, Apple Microsoft and Netflix that has seen the wild swings of the fund. For the past six months its been all up as the Nasdaq topped out at a record high, however since last week the mood has turned sharply negative for high-valued tech stocks.
With the US tech names handing down their quarterly results, the numbers might be good, however expectations built into the share price are stretched. That’s increasingly making it feel like the high water mark.
“It’s very hard for these companies to deliver a great result and get a share price benefit from that,” she says. The numbers through the US reporting season represents more downside risk to US shares even if the numbers are quite good.
Longer-term investing into artificial intelligence should be played across two themes: the enablers – companies like Microsoft, Nvidia or Amazon providing the AI infrastructure.
The second theme is the adopters or the companies where AI will benefit. The enablers are fighting it out for investment in the space, however for the adopters it’s still at an experimental stage, Thomas says.
“We’re not at the point where the adopters are truly monetising any of it,” she says.
Thomas was one of the first to join Magellan when it was founded by Chris Mackay and Hamish Douglass more than two decades ago. She left for Alphinity investment in 2018, before rejoining Magellan in 2022. The growth fund was a different organisation she returned to with the exit of long-time boss Douglass, who was no longer calling the shots and a new management and board in place.
Thomas says China is still too difficult for a fund manager to find the right stocks. Not only the economic risk, but political risk is high. Interestingly she was planning a visit to China earlier this year but cancelled because she couldn’t get the right kind of access. Still, as an investor you have to have a strategy because what China does is important on the global stage. This might be from manufacturing cheap EVs or ongoing demand for steel.
Thomas is one of the portfolio managers who provides pro bono services to Future Generation, the listed fund that was set up to deliver returns as well as social impact investing. She was speaking to the fund’s chief executive Caroline Gurney.
