Media Release

This month PM Capital is hosting a series of investor forums across five Australian capital cities exploring how the manager goes about finding and interpreting anomalies to drive risk-adjusted returns.

PM Capital’s founder and Chief Investment Officer, Paul Moore, refers to the book and movie Moneyball, which tells the inspirational story of the cash-strapped Oakland A’s baseball team and how its general manager Billy Beane thinks differently to find excellent value-for-money replacement players. The A’s go on to set a record-breaking winning streak.
 

Mr. Moore said the theory of Moneyball also applies in the financial world.

“In Moneyball, Beane’s secret is turning his back on accepted baseball wisdom and searching for players, who, for whatever reason – age, appearance – were unliked or overlooked, and therefore mis-priced.

“With investing it is no different. The best investment opportunities will find few who are interested, many who are dismissive and some who will even ridicule.

“Many people may think they are taking extra risks if they are investing differently. But in our opinion, the real risk is you are not doing anything different. Never let the opinion of the crowd stop you from acting on what you know to be right,” he said.

“From an investment perspective, to be a successful investor you have to be doing something that others are not.

“Anomalies can arise because other investors are afraid of underperforming their peer group, lazy research or relying on perceptions rather than facts,” Mr. Moore added.

Mr. Moore pointed out two market anomalies that he believes represent great opportunities for active fund managers and investors: ‘Bondnado’ – a reference to the chaotic horror film Sharknado, and passive investing.

‘Bondnado’ is coming for long-term government bond investors

Bondnado is a term Mr. Moore used to describe how the likely hikes in interest rates could be harmful for investors in government bonds.

In Sharknado a freak cyclone causes Los Angeles to be hit by a watery tornado of man-eating sharks. 

“’Bondnado’ is how we are describing the carnage investors may see in long-term government bonds.

“In 1989 the standard variable rate in Australia was 17%. We now have interest rates in the low single digits when debt is at record levels and in Europe some variable mortgage interest rates are actually negative. It’s all driven by central bank flows and investors may be underestimating how far from normality we really are,” Mr. Moore said.   

Passive investing - the more subtly anomaly

Mr. Moore noted that passive investing was dominating fund flows but that this investment approach did not take account of underlying corporate valuations.

“This surge of passive investing has caused a greater likelihood of distortions in market prices. Ironically, the greater the concentration of flows into passive, the greater distortion in asset pricing and thus opportunity for a genuine long term investor.

“Investors may expect historically low net returns from a blended portfolio that includes passive equities, increasing the need for high conviction managers,” Mr. Moore added.