Direct equities/AMC/IRE/RMD/BHP

A small run of good news, in aggregate. We wrote yesterday about the Amcor upgrade to guidance; that’s pleasing.

Late yesterday afternoon, IRESS (wealth management software company) also upgraded. These are quite large positions for us.

RMD also ran very hard, following the quarterly update, and, whilst it had good momentum, we did use it to narrow some of our underweight to BHP. RMD came into the portfolio at ~$25, and exited at ~$32 (with a somewhat unpleasant interim journey to $21) and as such we thought it was probably fairly valued.

We’ve been negative on iron ore and BHP forever; however it is also the case that a) copper seems to be doing well, suggesting some resilience to industrial metal demand and therefore a possible “better than expected” global growth dynamic and b) iron rallied +16% in April whilst BHP fell, and so that makes an already reasonably “lowish headline value of ~12x” look better c) the UBS guy who has been correctly very bearish on China property started getting more positive d) if the 40% fall in China housing starts didn’t really dent the iron ore price what on Earth will e) the China policy backdrop just simply does not seem to be switching to a “support domestic consumption at the expense of investment”, which runs contra to our thesis f) if the Anglo American deal goes through BHP becomes simply enormous and our underweight too large.

In any case, we’ve only narrowed the underweight, on net, we are still UW commodities. So perhaps that g) if we really are in a world in which inflation is stubborn commodities will likely remain bid as one of the few broadly useful inflation hedges out there.

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