MARKET VIEW
• Industry challenges : Weak performance among managers has led to meaningful outflows . Perpetual ’ s recent performance has been positive , while Platinum and Magellan ’ s underperformance has affected their flows . Improving fund performance will be a key catalyst for a rerate .
The relative value offered by passive funds has potential to continue winning flows aggressively away from active managers , but strongly performing managers with a differentiated product suite will likely continue to win flows .
An increasing regulatory focus by APRA on superannuation fund trustees around investment performance and fees could result in a structural shift towards more passive management favoured by trustees to avoid any risk of underperforming benchmarks .
Ongoing disruption to the retail advice market post the Financial Services Royal Commission has particularly affected the local players . We also note structurally low barriers to entry are creating competition across fees , flows and margins .
The upcoming consumer reporting season is likely to remain volatile , characterised by solid results and cautious outlook statements . This caution could be driven by :
• Omicron disrupting January trading and supply chains ;
• inflationary pressure building ; and
• an uncertain demand backdrop given the potential for the RBA to raise interest rates in 2022 .
For the first time during the pandemic , retailers are entering reporting season with low sales and margin expectations . Against this backdrop trading updates have been mixed , although generally ahead of low market expectations , if not consensus forecasts . Two key aspects arising from the consumer sector :
• Focus on inflation – The outlook commentary across the retail sector will focus on the impact of rising inflation . The grocery segment is facing into the inflationary wave over the next quarter . While a sales tailwind , there are concerns shoppers may trade down and promotions will need to ramp up . Quality retailers with pricing power operating in industries with lower price visibility are better placed .
• Trading updates – Trading updates have been mixed , but have typically exceeded low market expectations . Outperformance has been most pronounced post trading update , on both upgrades and downgrades , given near-term certainty .
Bruce McLeary
Associate Senior Analyst ( 07 ) 3006 7219 bmcleary @ burrell . com . au
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