Bryce has done his homework

Bryce: [00:00:13] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you going?

Alec: [00:00:30] I'm very good, Bryce. Good to be back here again. 

Bryce: [00:00:33] Yeah, back in the hot seat. Talking stocks, talking markets. Talking about what we've learnt. Yeah. Can't wait. 

Alec: [00:00:39] Learn a lot. Um, I was listening back to our episode from last week, and you had a lot of homework. I did. So I hope you've done it. We'll be checking your work later on. But we've got a big episode. We're going to talk about what we've learnt. I'm going to check on your homework. One of the things that you said you were going to do was bring a worked example of your ETF investing checklist. So I'm excited to hear that we're learning a lot from a few companies reporting in Australia. It's obviously the US reporting season, but there are a few Australian companies that report quarterly. So we wanted to talk about what's happening here at home and then we got a Playbook Bonanza again.

Bryce: [00:01:16] Yes. Epic end to this episode. It was a lot of fun last week, going head to head with Simon from our team, but this week we are fortunate to have our first community member joining us on the show to try and win a book from your book collection. So really excited to close out that episode. 

Alec: [00:01:33] And last week the three questions were about big tech and we learnt a bit about that. Okay. This week the industry that we're going to be learning about and there's some interesting stuff in there, airlines. 

Bryce: [00:01:44] Airlines love it. Luckily, that's my favourite industry site, but let's move on. What we've learnt this week, I did have some homework so I might as well kick it off this week. Last week I was talking about coming across a market cap weighted S&P 500 versus an equal weighted S&P 500 ETF. And the homework was to go and actually look at whether or not an equal weighted index outperforms over the long term. 

Alec: [00:02:19] Well, we were saying that it was strange that in the past few years the economic theory had been flipped on its head. And we were asking if over a longer period of time the economic theory was correct or it was wrong. Yeah. To just quickly recap, the economic theory is that equal weighted ETFs should perform better in bull markets when, you know, growth stocks are doing well. But the market cap weighted ETFs that has more of the big, boring, slow guys should do well in bear markets where you get more defensive and like Commonwealth Bank and BHP come to the fore. But in America, that theory was flipped on its head over the last couple of years, over this year and the five years.

Bryce: [00:03:04] Five years. 

Alec: [00:03:04] And so you were going to go back in the history books and you've crunched the numbers. 

Bryce: [00:03:09] And I've gone back in the history books, Ren so I have crunched the numbers. So let's look at America first, the S&P 500, and then we'll have a look at Australia. So I went back to 2004 some I could have gone back to 1989, but the numbers became a little bit blurry. But so S&P 502,004 to today and this is for market cap weighted. So just the bigger stocks at the time there was a return of 250%. 

Alec: [00:03:41] Okay. 

Bryce: [00:03:42] Pretty good by the way. Yeah, I'd be taking them. 

Speaker 1: [00:03:45] Final. 

Bryce: [00:03:46] 250% for market cap and this is probably what the majority of us as investors are invested in when you get a broad based S&P 500 index. The S&P 500 Equal Weight Index from 2004 to today is 311%. So pretty significant outperformance. 

Alec: [00:04:07] Okay. [00:04:07][0.0]

Bryce: [00:04:08] What is interesting is that when you do marry it up, it actually tracks on the downside pretty similar to the S&P, but really cranks up when you're on the upside. 

Alec: [00:04:19] Okay. That's interesting.

Bryce: [00:04:21] Yeah. And similarly in Australia. So since 2002 the market cap weighted ASX 200 has returned 300%, whereas the equal weighted ETF has returned to 404%. So again, pretty significant outperformance over the last 20 years. And again, we can see here and I'll put the chart up on the forum that again, it rips on the upside and tracks it pretty closely on the down. 

Speaker 1: [00:04:50] Yeah, you. 

Alec: [00:04:50] Say it tracks that pretty closely, but looking at this chart, it fell further because like if you look at around 2008, I know us talking about a chart is not great, but 2006 to 2008, the equal weight rips and it's fair bit ahead. And then in the downturn it actually ends up below. So like a percentage, it fell a lot further. Yeah, yeah, that's true. 

Bryce: [00:05:13] That's true. 

Alec: [00:05:14] Which is so I mean, like the take away from this is the economic theory holds. 

Bryce: [00:05:18] Yes.

Alec: [00:05:18] The last few years have been enormously.

Bryce: [00:05:21] So now it's got me thinking about what I do with this, because.

Alec: [00:05:24] So. 

Bryce: [00:05:25] Many times you say that. It's got me thinking and I don't have an answer for this and maybe I'll take this homework again. But it's got me thinking about how I approach indexes broadly. 

Alec: [00:05:40] We can't keep doing Bryce homework. Just come ready. What? Well, okay. Talk to us.

Bryce: [00:05:46] Well, it's. It's. It's now made me think. Should I just change to equal weighted? And think over a long term like the maths and the maths is there, the theory out there and the results are there that. [00:06:00][14.4]

Alec: [00:06:01] I guess the question is, is the product there? So in Australia, Betashares have an S&P 500 equal weight, is that right? Yeah. Does anyone do ASX 200 equal weight. 

Bryce: [00:06:12] I haven't done my homework on that. 

Alec: [00:06:13] Yeah. But I mean like if you are willing to wear more, more pain on the downside, like, you know, in a bear market like this, if you're willing to say portfolio, go read. 

Bryce: [00:06:23] Well, you'll see why I'm thinking about it because after we find out what you've learnt this week, we're going to do a checklist worked example for one of the. ETFs in my portfolio, which tracks the S&P 500. So it's going to be a nice comparison. So let's say so. So anyway, I've got a link that I'll put in the form as well that has some pretty detailed mathematical explanation as to why outperformance occurs for equal weighted. It's all to do with distribution of stocks, etc., etc.. Pretty interesting, right? So I'll put that in the forum community thought Equity Mates icon when this episode comes out on Monday, so have I done my homework? Do I pass?

Alec: [00:07:05] Yeah. Well, that was only part one. The other part was this worked example, which I'm looking forward to. Yes. But yeah, I mean, that's interesting. 

Bryce: [00:07:13] Does that surprise you? Does that surprise you? 

Alec: [00:07:15] So I've just done a quick Google of arguments against equal weighted index. The beauty of podcasting is no one will know how long it took. So they have higher turnover, which leads to higher expense ratio and generally higher capital gains taxes. So one thing might be you pay higher fees. Yeah, but I mean, if you're if. 

Bryce: [00:07:36] You're upset. 

Alec: [00:07:37] Outperform, then yeah, they're more volatile and can fall sharply during recessions. But we recognise that sectors with high loss rates like information technology may underperform with equal weighting. But like that's just to do with the, the weighting in the index like the long the short of it is from a very cursory Google. There's not a lot of arguments against that really, other than it's more volatile, there's more risk. But like if you're willing to add that risk.

Bryce: [00:08:06] My thinking got me thinking. Alright, well what have you learnt around this week? 

Alec: [00:08:09] So two things for me. First of all, I just want to wish you a happy anniversary. 

Bryce: [00:08:14] Okay. 

Alec: [00:08:15] For we are into November, which marks 12 months from when the market turned. Okay, our bear market anniversary. 

Bryce: [00:08:24] Okay. I was going to say it's two years since we quit our jobs, but happy anniversary to that. 

Speaker 1: [00:08:30] It's a better anniversary. 

Alec: [00:08:33] But yes. So November 2021, we were all riding high, were buying NFT days, we were minting cryptocurrencies.

Bryce: [00:08:40] We were getting rug pulled. 

Alec: [00:08:43] We were saying Pokemon cards to the moon. What other stupid things were people saying in 2021? 

Bryce: [00:08:50] Oh, I mean, we're in a bubble. Everybody's galore. 

Alec: [00:08:54] Everything was going to be web three, bad Web three. If you're a if you were a pre-revenue start up, you could raise a stupid valuations. Life was.

Bryce: [00:09:03] Good. 

Speaker 1: [00:09:03] Life was good. Wow.

Alec: [00:09:06] So you brought some charts. I've done some charting of my own. We're right in the teeth of a bear market. Actually the ASX 200 is only down 5% in the past 12 months.

Speaker 1: [00:09:19] Carl Oh actually, yeah.

Alec: [00:09:26] But the S&P 500 is down 19% in 12 months, so we're down 19% in the past 12 months. But you hear this term bear market rally a lot or dead cat bounce and we're kind of in one now. The S&P 500 is up 5% since the end of September. And so I just had a look at the chart. Understand this, this bear market rally phenomenon. So you could say we're down 19% in the past 12 months.

Speaker 1: [00:09:57] Yeah.

Alec: [00:09:58] Or you could say in the past 12 months where? Down 3%. Up 6%. Down 10%. Up 6%. Down 9%. Up 11%. Down 6%. Up 7%. Down 12%. Up 17%. 

Bryce: [00:10:16] I remember that when that was recent. 

Alec: [00:10:17] Down 17%, up 9%, down 4%.

Bryce: [00:10:22] Yeah. 

Alec: [00:10:22] And so just like it's not linear, you know, top to bottom. But there are some data rallies in there, up 17%, up 11%.

Bryce: [00:10:32] Well, I remember those I think the 17% one that was the. 

Alec: [00:10:36] Is a time. 

Bryce: [00:10:36] Chatter radio is calling the bottom. And it was at that time that and to his credit that we had the Julian McCormick interview as we're ripping up through the 17% in his. No, no, no. Yeah. 

Speaker 1: [00:10:50] There's more. 

Bryce: [00:10:51] To come. And here we are. And I think overnight we had the Fed bump up 0.7 5% again. Market took a hit. Still more to come. 

Alec: [00:11:00] Yeah. So I think that's just an interesting illustration of how our markets fall and this phenomenon of bear market rallies. 

Bryce: [00:11:10] It's also why dollar cost averaging is a great strategy because you get down to nine a little bit of the upper the 10th, down the four, the upper the six. All right. So that was your first thing you learnt. What else have you learnt before we move on?

Alec: [00:11:22] So we often joke about new ETFs and how many ETFs there are coming to market. I came across a couple that I thought were interesting. Have you ever heard the phrase Buy the close and sell the open?

Bryce: [00:11:36] Yes.

Alec: [00:11:36] Don't explain it.

Bryce: [00:11:37] There's often a little bit of a rally. At the end of the day. You can jump in on that and then sell it the next morning. 

Alec: [00:11:43] Yeah, it's like news comes out overnight and stock prices gap up overnight and so they're higher at the open and then they trend down over the course of the day. So you buy it at the close when they're low and then overnight investors get refreshed and they get excited about these stocks again and then they're bidding higher prices at the open in theory. Yeah. So anyway, two new to ETFs have come out to, I guess, give investors access to that idea of buying the clothes, sell the open. They're called Knight shares. There Knight shares 500, which does it for the S&P 500 and then Knight shares 2000. That does it for the Russell 2000.

Bryce: [00:12:28] Seriously active, I. 

Alec: [00:12:29] Guess they must be. Yeah. So I actually do a tracking like so I haven't actually looked at the mechanism, but I assume it takes the S&P 500 and buys them maybe every day at the close and then sells them at the open and then does nothing throughout the day and then does the same thing again. By the close they open. 

Bryce: [00:12:45] The management fee on. That must be extraordinary. 

Alec: [00:12:48] Well, you can probably automate it.

Bryce: [00:12:50] No, but I mean, like you're paying for a buy and sell every single day.

Alec: [00:12:54] Oh, you mean the brokerage on it? 

Bryce: [00:12:55] Yeah, true. Like the cost of doing that. Well, it's getting more and more ridiculous. Is it? These are less becoming ETFs and more becoming hedges.

Alec: [00:13:05] Oh, like active managers. Yeah, yeah, yeah.

Bryce: [00:13:07] They're just listed as active management. 

Alec: [00:13:10] Which is fine. Like an active ETF is.

Speaker 1: [00:13:12] Yeah, yeah. 

Bryce: [00:13:13] But yeah, it shouldn't be confused as a core low cost. Yeah, right.

Alec: [00:13:20] But it's not like this is the no shares 500 is basically the S&P 500.

Bryce: [00:13:25] With over the loss. 

Alec: [00:13:26] You know it's yeah yeah yeah you're right you're 100% right. I didn't look at exactly how they manage the ATF, but what I looked at first is, the face we are holding is the Knight shares thesis working. Jonah has it, I guess. 

Bryce: [00:13:40] I know. 

Speaker 1: [00:13:42] You've. 

Alec: [00:13:42] Nailed it. So let's look at the S&P 501st. So the S&P 500 index versus the Knight shares, 500, ATF not shares 500 launched on the 28th of June. So we've got a couple of months of performance. S&P 500 is down 1.6% in that time. Knight shares 500 is down 7.2% in that time fail. All right. The Russell 2000 versus the Knight shares 2000. The ETF also launched on the 28th of June. 

Bryce: [00:14:13] I'm actually a big fan of the Russell 2000. 

Alec: [00:14:15] Well, that is good because the Russell 2000 is actually up at that time. Yeah, up 2.9%. Knight shares 2000 down 8.1%. Oh, that's almost a 10% difference. Wow. In a couple of months. 

Bryce: [00:14:31] I don't intend to. 

Speaker 1: [00:14:32] Comment so far. 

Alec: [00:14:34] So anyway, I guess the lesson there is just be careful of these exotic ETFs. 

Bryce: [00:14:40] Yeah, yeah. Because there's more and more of them and it's just getting a little bit ridiculous. They need to change the name away from ETF because. Yeah. Anyway, there's a connotation with ETFs and. I don't like it. I don't like where they're going with it. 

Alec: [00:14:50] Yeah. Or like index ETFs needing, you know. 

Bryce: [00:14:53] Yeah. Yeah. Exchange traded, active management at times. 

Alec: [00:15:01] Someone better than Brice. 

Bryce: [00:15:02] Anyway. Nice moving round. We've got plenty to get through. So let's move on to the investing checklist that we've been working on over the last couple of weeks. We haven't got to the single stock stuff yet, but it's a very generous way. You just said the way I have been working on over the last couple of weeks. I started out building one for individual stocks, realised that there's probably a need to do one for ETFs first. 

Alec: [00:15:26] Isn't ETF heavy? 

Bryce: [00:15:28] It is, but that's okay. 

Alec: [00:15:29] We'll get to some individual stock stuff, don't worry. 

Bryce: [00:15:31] And then last week you said, how about you come back with a worked example of my checklist against an ETF so we can put it in practise and safer work. So I've got one and I'm going to use the ETF. G Gus, GGUS is the stock ticker and it is a geared US equity fund hedged against what's hedged and its provider is betashares and so. 

Alec: [00:16:04] So it's triple leveraged. 

Bryce: [00:16:06] 2.28%. Not quite triple. 

Alec: [00:16:08] Oh really. Yeah

Bryce: [00:16:09] 2.2 times. So just just.

Alec: [00:16:12] Everyday.

Bryce: [00:16:12] So let's go through it. I think it is worth also for transparency and disclaimer. This is a position in my portfolio at the. 

Alec: [00:16:21] Moment in mine as well, if people care. 

Bryce: [00:16:24] In runs as well. So let's start at the top. If I'm thinking through this, what am I trying to do? My aim at the moment is to get exposure to the US and have it as part of my core portfolio, which we've spoken a lot about. So that's the aim. If you were to do this without having actually bought the ETF on our need to go through and use this checklist to determine whether or not the US fits the bill. 

Alec: [00:16:47] What's your time horizon? Does that come into strategy or does that come later?

Bryce: [00:16:51] Time horizon comes into purpose. What is my investing strategy? So for me, the time horizon is the next 40 years. 

Alec: [00:16:58] Okay. 

Bryce: [00:16:59] So I've got the checklist here and I'm not it's not a sort of a one out of five or anything like that. It's more of a yes no checklist. And ideally you get to the end in, there's probably more yeses than there are on those, and there are some of them that are more important than the others in terms of price and those sorts of things. What are your thoughts? 

Alec: [00:17:19] I'm just keen to get to the checklist. 

Bryce: [00:17:22] Let's go with a purpose plan. So I think the first question I ask myself is does this fit my investing strategy? So firstly, that is to build a portfolio over a long period of time and that's really it. Give me broad based exposure to the US stock market. 

Alec: [00:17:36] Okay. 

Bryce: [00:17:37] Does this fit? Yes. It's going to give me broad based exposure to the US stock market because it tracks the S&P 500. Is it something that's good for a long period of time? My answer to that is yes, because it is broad based because it's tracking the S&P 500 and it is a geared stock and it for me, gearing over a long period of time, 2.2 times leverage ideally is going to give me some pretty meaty returns. I think if you think about gearing for May, gearing is something that is probably better done over a longer period of time than trying to gear over two or three days.

Alec: [00:18:16] Yeah. And there's an important nuance there that we need to explain because a lot of leveraged ETFs aren't great for a long period of time because of data slippage. Yeah. Which is really at its core. Rather than borrowing money to buy more of the stocks in the ATF, a lot of providers will artificially construct it with options and stuff like that, and so they'll track daily returns. But over a long period of time there'll be a discrepancy because they're just trying to match day to day returns. But actually when we first talked about this ATF on the show, we thought beta shares are doing the same thing and we were told in no uncertain terms that they weren't. Yeah. And so they actually just borrow money from a bank or something and buy more. So it's like it's leveraged in the same way. That way would be leveraged if we borrowed money rather than being leveraged through options. Yeah. So that's an important watch out if you'll maybe need to be a tick box. If it's leveraged, how is it leveraged? 

Bryce: [00:19:16] Yes. Yeah, good call. So then does it sort of fit the way that I like investing in the way that I want to invest into my core portfolio, which is your dollar cost average? I don't have to think about stock picking. I mean, in its essence, an ETF allows me to do that. So this is an ETF that takes that box. 

Alec: [00:19:40] Cool.

Bryce: [00:19:40] And any questions or comments.

Alec: [00:19:43] Or make sense. 

Bryce: [00:19:43] So the answer is yes. 

Alec: [00:19:45] You generally don't have to ask if I have questions or comments, I'm sure. Let me jump in. 

Bryce: [00:19:50] So then we move to positions. And the question for me is, is it true to label the positions in the fund actually match the fund's objectives? Now, the Fund's objectives are clearly stated as giving us exposure to the top 500 US companies while tracking the benchmark of the S&P 500. You look at the holdings and that is exactly what it does. 

Alec: [00:20:12] Yeah, I guess. 

Bryce: [00:20:13] True to label. 

Alec: [00:20:14] That gets to I guess this becomes more relevant with thematic. Yes, very much so. Yeah, but yeah, take it.

Bryce: [00:20:20] For the purpose of doing that. Then if I'm thinking about my core portfolio, you want it to be diversified, you want it to be broad based. So then you think, is this a diversified ETF by nature of what it's tracking, 500 stocks, market cap weighted? Yes. If you then have a look at what that actually means, 25% in it, 15% health care, 11%. Consumer discretionary, 10%. Financials are diversified. 

Alec: [00:20:47] Yeah, it's all American, though. 

Bryce: [00:20:50] It is all American. But that's fine, because for this purpose I wanted a US based exposure because let's say I take another example. There's a global X, it was an ETF securities, they have an ETF that tracks US Tech, but it's got ten stocks in it. So that's not something that's going in my portfolio. And I wouldn't say that's something that's diversified. Yeah, different fund objectives, though. And then the third thing for me is to make sure that it's not overlapping too much with other stocks. In my portfolio, other ETFs, as we've spoken many times before, no point buying an S&P 500 and then buying a top tech and then buying top pharmaceuticals and then buying top consumer discretionary because you likely have a fair bit of overlap. So for me, against a lot of positions in my portfolio, there are some, but I'm okay with it. So it's a yes. Cool move on. 

Alec: [00:21:48] I see. Yeah. 

Bryce: [00:21:51] Price the very important one because if I'm thinking about this for the next 40 years, you want to keep prices as low as possible. So the question is, is this the cheapest option? The answer here is actually no. There are cheaper options to get access to the S&P 500. The Vanguard US total stock market is 0.03% and iShares also have a core S&P 500 at 0.03% as well. The management fee for this ETF US is 0.8%. So it is more expensive. 

Alec: [00:22:24] Wow, a lot more expensive. 

Bryce: [00:22:26] Yeah, a lot more expensive. The reason being, I imagine, is because of the internal leverage and the costs associated with. 

Alec: [00:22:33] Yeah, well I got to pay interest on that. Yeah, I assume so. 

Bryce: [00:22:35] The question for me is then if it's not the cheapest option out there cannot justify paying a higher price for it. And for me, I'm willing to pay more in management fees with the expectation that over 40 years the leverage should. Outweigh the increase in cost. 

Alec: [00:22:56] And I guess the two questions there are, first of all. Like historically that has been the case since inception. The returns have outweighed the management fee. Like the returns of this, ATF have done better than those the vanguard in the iShares when you spoke about. 

Bryce: [00:23:14] We're going to get to that in a second. 

Alec: [00:23:16] Okay. 

Bryce: [00:23:16] Yes. 

Alec: [00:23:17] That doesn't sound like a yes. Yes, I would put a pin in that, because my second question is, you've kind of compared it to two ETFs that aren't exactly the same. Yeah. Are there other leveraged U.S. ETFs.

Bryce: [00:23:32] To your point earlier? Not that I can find the same leverage structure, if that makes sense. Sure. Interested in synthetic stuff. 

Alec: [00:23:42] But surely there would be in the U.S.. 

Bryce: [00:23:45] I didn't. 

Alec: [00:23:46] Look okay. Yeah. No currency hedging if you're buying in the US stock market, but.

Bryce: [00:23:52] Yeah. Well, I think that's another point for me, which is further down the bottom. I did want a domiciled Australian ETF and this is listed on the Australian Stock Exchange easy for tax. And it's yeah it's whilst I do have ETFs that are listed overseas for this, I was happy for it to be Australian. [00:24:14][21.9]

Alec: [00:24:15] Yeah. Okay. So you're giving it a tick on price. 

Bryce: [00:24:18] I'm giving it a well, it's actually a No. One price, but it's something that I'm willing to accept.

Alec: [00:24:23] Yeah, yeah, yeah.

Bryce: [00:24:25] Let's look at performance because we know it. It should outperform the benchmark. But since inception then the benchmark has returned. And this is since 2015, the benchmark has returned 9.21% per annum. The fund has returned 9.95% per annum. So it's actually not a massive outperformance. There are some moments in there where it's significantly underperformed because it is leverage. 

Alec: [00:24:54] Like in the last year, the benchmark is down 16% and the fund is down 43%. 

Bryce: [00:24:59] Yeah. Yeah. And yet smashing my portfolio, absolutely smashing it. But then if you look at it from a calendar year point of view and you look over the last sort of five years where we've had this bull market, 2006, the benchmark returned 11%. The fund returned 23, 2017 benchmark was 21%, the fund returned 45%. We had a down year in 2008. The benchmark was down about five, the fund was down 20%. So you can see that it's doing what it's supposed to. But I was surprised to see that since inception that it was so close to benchmark.

Alec: [00:25:36] JS 2019 was a good year for stocks. The benchmark was up 30% and the fund was up 70 or 69%. Yeah, what is that? I assume the benchmark is just S&P 500. 

Bryce: [00:25:47] Yeah, S&P 500. Yeah. Yeah. So historical performance, I mean, it's doing what it is supposed to. It did surprise me that, as I said, that it's so close. And then you could argue, well, why are you paying high fees if since inception the benchmark is 9.21, the fund is 9.95. Probably that probably in favour of going for the cheaper option. 

Alec: [00:26:11] Well, no, but it's also a quirk of timing like the fund year to date has been cut in half. Yeah. Yeah. So like you're looking at it in a bear market, if we extend that time horizon a few years theory would suggest that those numbers start to look different. 

Bryce: [00:26:31] To 2021 fund yeah look at that benchmark up 28% fund up 66 what a few years we were having anyway let's keep going. 31 is prospects i.e. is it associated with an industry or a sector that's got some good growth outlook over the next time? Sort of over my time horizon, it's the S&P 500. It's just going to keep chugging away. It's the top 500 companies in the states. It gets very balanced as newcomers keep coming through. We've spoken a lot on the show about how the stock market just allows you to get access to innovators and everyone doing amazing things. So Tick. 

Alec: [00:27:10] Co.

Bryce: [00:27:11] And then provider, is it one of the major providers. It's from Betashares, one of Australia's largest providers and it's domiciled in Australia. So it's easy for tax. So a lot of yes is the. 

Alec: [00:27:22] Right. 

Bryce: [00:27:23] That's what's in my portfolio. So I think if I was to do this again, I'd probably do a little bit more detail around competitors. It was a bit easy to run through this because I already had it in my portfolio. Yeah, it would have been different if I'd just chosen at random a random ETF. 

Alec: [00:27:40] Yeah.

Bryce: [00:27:40] And tried to fit it against my investing strategy. But yeah, pretty straightforward. 

Alec: [00:27:45] I didn't really have any builds, to be honest. 

Bryce: [00:27:47] That's fair.

Alec: [00:27:48] I mean, we're talking about a relatively vanilla ETF. Yeah, obviously it's leveraged, but yeah. Yeah, maybe there's a world where we do it for thematic one, but I think we're 30 minutes into this episode and I'm ETF out Ren. 

Bryce: [00:28:03] Before we move to discussion on specific stocks, we're just going to take a quick break to hear from our sponsors. All right. Ren So the ASX sharemarket game is in full swing. We've got some ASX companies that are also reporting quarterly results which we're going to go through. 

Alec: [00:28:19] Yeah, quarterly results used to be quite an American phenomenon, but like everything in culture, America's soft power seeps outside its borders and infects our minds and more and more Australian companies are reporting quarterly. In fairness to them, it's a lot of Australian companies that have quite international operations and quite global shareholder bases. Who knows, maybe quarterly reporting will become more of a thing in Australia. But there's a few companies that caught our eye and we know that a number of people in the Equity Mates community are playing the ASX sharemarket game at the moment. So you get 50 grand in fake money and you can, I guess, try and bait fellow investors alone to invest. Get a sense for it over 12 weeks. So 12 weeks you can't have a long term investment horizon here. You really have to think about what's going to be a catalyst while I'm investing and earnings reports are often great short term catalysts. 

Alec: [00:29:20] Yeah, yeah. 

Bryce: [00:29:21] So it's only a couple of weeks to go. So three stocks here and we've got Amcor, Qantas and Macquarie. And then we're going to take a very brief look at some of the key holdings in those that are doing incredibly well in the ASX share market. Okay, but let's start with Amcor. Ren, one of the world's largest manufacturers of consumer products. 

Alec: [00:29:40] I think is the one that. 

Bryce: [00:29:42] Is. 

Alec: [00:29:43] I believe so. Wow. Yeah. 225 packaging plants around the world listed on the ASX, I think maybe dual listed also in the States, but AMC is the ticker here in Australia. And I guess if you're thinking about where it fits, think about when you walk into a supermarket. Most of the products on the shelves there are wrapped in Amcor created packaging.

Bryce: [00:30:10] In produce or just just. 

Alec: [00:30:12] Really just everywhere. Wow. Made cheese, sauces, condiments, beverages, coffee, pet food, health care, personal care products. 

Bryce: [00:30:19] Wow. Have they reported? Well. 

Alec: [00:30:22] Yeah. Net sales up 9% to $3.7 billion. Profit was flat 270 million. But on a constant currency basis, profit was up 7%. Okay, so I guess the strong US dollar has hurt them. Yeah, but the reason we found it interesting was the effect of inflation overall. They've passed on 400 million USD in price increases in a quarter. 

Alec: [00:30:52] Wow. Yeah. 

Alec: [00:30:54] And 400 million in price increases and they made 3.7 billion. Wow. So they have two main divisions, flexible and rigid packaging in flexible $270 million in price increases, about 10%. They raise prices in rigid 130 million price increases, which equates to about 17%. Price increase. Wow. So you're wondering where inflation is in the system? Obviously, it's in things like energy and in food commodities. We're seeing it, but we're also seeing it in the very packaging of all the products that we buy. And that's why inflation becomes really sticky and really hard to get out of the system because it's in everything. 

Bryce: [00:31:39] Yeah, once it's in, it's in. 

Alec: [00:31:40] And you can sort of understand why like packaging, a lot of packaging is made from plastic, which comes from oil. So it's exposed to the oil price, a lot of energy to make packaging, a lot of energy to recycle cardboard and make packaging out of that. Like it's just everything. And the transport costs as well.

Bryce: [00:32:00] Massive player. Massive player. Let's move to Qantas. 

Alec: [00:32:04] Yes. 

Bryce: [00:32:06] Alan Joyce, always in the news. Yeah, always in the news. Have they reported. 

Alec: [00:32:10] So they didn't technically report. They had a third quarter trading update, but people got pretty excited because they announced that for the half that they're in now, they're back to profit. 

Bryce: [00:32:22] Because they've cut their entire workforce.

Alec: [00:32:24] If we lose, if we make a dollar for every flight, we cancel, on every bag we lose, we'll be back in profit. Yeah, they expect to make between 450 and $550 million for the half in profit. Wow. Here's something that I found interesting in their trading update project Sunrise. Qantas are ordering 12 Airbus A350s capable of flying from Australia to quite any other city, including New York and London, including New York and London is probably tautological if you say any other city. Yes, but starting from Sydney in late 2025, they'll have 12 planes that you don't have to stop. You can just fly anywhere.

Bryce: [00:33:05] I mean, that kind of freaks me out thinking about being on a plane for literally almost 24 hours. I think they did a test from Perth to London. Yeah. Or even or maybe even Sydney to London. And these planes are going to be built, obviously, with less capacity than the A380 is. Yeah, yeah, yeah. But they're going to be built so that there's exercise space and, you know. Oh, really? Yeah. It's done in a way so that you're not just going to be sitting for 24 hours because that is cooked. 

Alec: [00:33:35] Let's calm down the rhetoric. That's cool. It's like most of our lives are going to work and sitting down for 8 hours, going home, sitting on a couch and then going to bed.

Alec: [00:33:46] It's different.

Bryce: [00:33:46] They sit in that chair for 24 hours and tell me it's not cooked. 

Alec: [00:33:49] It's different because you know you can't get up. 

Bryce: [00:33:52] Yeah, yeah. And you just yeah. 

Alec: [00:33:54] You just there maybe have you saying you say it in like names and stuff. There's these desks where they have little petals and paper like cattle at the desk. Maybe we need that on a flight. Macquarie Yeah. So Amcor price inflation, Qantas Flight time inflation.

Bryce: [00:34:14] Macquarie Jamaican money, profit inflation.

Alec: [00:34:19] They're amazing. But any company that's so amazing gets my attention.

Bryce: [00:34:25] Why. 

Alec: [00:34:26] It's like, Can you be amazing forever? 

Alec: [00:34:28] Yes. Really? Yes. Cool. 

Bryce: [00:34:32] You're witnessing. 

Alec: [00:34:33] It. Next question. 

Bryce: [00:34:34] Witnessing.

Alec: [00:34:34] Yeah. So but like charts only go bottom left to top right until they are done. 

Bryce: [00:34:39] The S&P keeps going top to bottom, right, right, bottom left to top right. 

Alec: [00:34:44] So Macquarie half one net profit up 13% year on year to 2.3 billion Aussie I think. But interestingly they make 72% of their income outside of Australia. So forget this idea that Macquarie is an Australian business, it is a global giant. Now to the point where were you mate shout out to Elton, who's in New York. And he was saying that he knew someone who was studying finance and in that world and like Macquarie was like a coveted place for people in San Francisco and New York to get a job. Yeah they Macquarie is taking it to the Goldman's in the JP's of the world. 

Bryce: [00:35:21] Fair enough and I.

Alec: [00:35:22] Love to say that. Yeah.

Bryce: [00:35:23] Yeah well Ren they're getting close to $1,000,000,000,000 in assets under management.

Alec: [00:35:28] Trillion Aussie while a trillion. A trillion. Yeah, I know. 

Alec: [00:35:34] But what we were tossing around in the office before, there are a few asset managers that are in the trillion dollar club. There's Vanguard, which is like 10 trillion or two. Yeah. And then BlackRock and then State Street. BlackRock has iShares ETFs and State Street has SPDR. SPDR. I don't know if there's any others now. 

Bryce: [00:35:59] I couldn't think of any. 

Alec: [00:36:01] But that just might be our knowledge more than anything else. But then there's a few that are next in line. And I saw that Macquarie had 800 billion assets under management and I was like, could Macquarie be next in line? Then I saw it was. Dollars, which translates to about 500 billion. 

Bryce: [00:36:18] So that's bigger than KKR. Is it? Yeah, I think KKR is high. 40 high for hundreds. 

Alec: [00:36:25] Okay. Yeah. So I think next in line to get there is Blackstone, the private equity player. They've got about 950 billion. But it just puts into perspective how big Macquarie is. And so a lot of Macquarie's money is in infrastructure and stuff like that. Just really impressive, really impressive company. 

Bryce: [00:36:44] Love to say it. 

Alec: [00:36:45] Yeah. 

Bryce: [00:36:45] All right. So we've spoken about the ASX game. We've got three portfolios of some of the players that have been jostling for top spot over the last number of weeks. There's only two weeks to go. Shout out to the time of recording and I know this is going to be a little bit late when it's released, but at the time of recording, Gogo was sitting at the top of the leaderboard with a profit of $18,000 over the last two months. The game started in August. Then we've got Eskimos portfolio and Peter Jordan as well, who are all in positive territory, 16,000 profit or above. But again, the key call out for me is between the three portfolios, there are two stocks that they all hold and that is Whitehaven Coal and New Hope Corporation. 

Alec: [00:37:31] Yes. So coal. 

Bryce: [00:37:32] Coal, no surprises. So since the start of the game, Whitehaven is up 47% and New Hope is up 35%. But interestingly it was up as much as 74. It's come off a bit over the last month or so and then Gogo and Eskimo also hold Pilbara minerals up 64% since the start of the game. So resource heavy and they've, they've played it well. I think the key takeaway from May as well is that these portfolios are pretty concentrated. None of them hold more than six stocks. In fact, Go Girl has four in hers and Peter Jayden has only two and two of them are also fully invested. So not holding a lot of cash on the sides. That's the way that you think about playing a game over three months. Get the cash in there, get it working. But there's only two weeks to go. It's a great game. So yeah, we'll be closing it out in a couple of weeks. But when that brings us to Book Bonanza for next segment of the show, we are stoked to be joined by Lily, who's going to be the first community member.

Alec: [00:38:36] Yeah, yeah. And hopefully not the last. So let's get off on the line. Alright, so we're joined by Lily for the second edition of Ren's book Bonanza. Lily, thanks for joining us today. 

Lily: [00:38:47] Thanks for having me. 

Alec: [00:38:48] Now, as we did last week, for those who haven't listened to last week, just a bit of context. I'm moving house and I'm too lazy to move the books that I've read to the new house. And so I figured, let's give them a way to people that might want to read them. So, Lily, the rules of the game are simple. I've got three books here and three questions. If you're going head to head with Bryce, whoever gets more right wins. I guess if you win, you choose which book we send you. If Bryce wins, he chooses which book we send. Do you all make sense?

Bryce: [00:39:25] Yeah.

Lily: [00:39:26] Yeah. 

Alec: [00:39:26] Right. The first book that we have, The Ethical Investor by Nicole Haydel. Now, we actually were interviewed for this book and I think we get mentioned, so a little bit of a narcissistic plug for ourselves there, but all about ESG investing. The second book, Simplicity Too by Danielle Acharya, are all about investing in the US stock market. So Lilly, if you want to get your head around investing overseas, this is a good one. It's the sort. The tagline is a guide to investing in the US stock market. Yeah, try the label. And then finally, because Simon didn't take it last week, we've got it back for another episode. The third book is Get Started Investing by Bryce and I Lilly. I'm not going to ask if you've read it, but if you haven't read it and you want it, this might be a chance to get a free copy. 

Bryce: [00:40:17] Perfect. All three books there. Lilly, do you have your eye on any?

Lily: [00:40:22] Yes. Which one? Which one? I'm going to tell you now. Okay. Alright. Alright. 

Alec: [00:40:26] Nice. Gave us in suspense. All right. All right. So last week, the theme of the quiz was Big Tech. This week we're going to go to the airlines.

Bryce: [00:40:38] Airline. 

Alec: [00:40:39] Oh, okay. Well. We're into November. We're thinking about the Christmas holidays. I'm thinking about travelling. Airlines are on my mind, but not that I'm flying anywhere this Christmas. But anyway, three questions now. The first one, I couldn't find a profitable airline for the last year. So which of these four airlines. 

Bryce: [00:41:02] Don't just speak about Qantas. 

Alec: [00:41:04] Now? They're going to be profitable this coming year. Okay, good. Yeah. Yeah. But obviously COVID interrupted and couldn't find any that made money. But which of these airlines lost the least amount of. Money in their last year. 

Bryce: [00:41:17] Okay. 

Alec: [00:41:17] Australia's Qantas Islands, Ryanair America's Delta Airlines or the owner of British Airways International Airlines Group. Lily, do you want to take a guess? 

Lily: [00:41:31] You know, what's funny is that I spent my last three years of education in Kobe, so I haven't travelled yet, so this is totally up my alley. Um, I really hope that. Quantas okay.

Bryce: [00:41:44] Qantas I'm oscillating between Ryan and Delta and I think I'm going to go with Delta. 

Alec: [00:41:53] And neither of you are correct. It was Ryanair. So Ryanair. Lost. They lost €340 million, Qantas lost 680 million Aussie. Even when you translate them, Ryan lost the least, the other two lost in the billions. So clearly you were closer than Bryce. So you got the point. 

Lily: [00:42:14] Yes. Okay.

Alec: [00:42:16] All right. Question two This is a bit of a trans-Tasman rivalry question: Which national carrier has had the better year from a share market performance? Australia's, Qantas or New Zealand? Air New Zealand? 

Lily: [00:42:31] I want to say New Zealand.

Alec: [00:42:33] And New Zealand. 

Bryce: [00:42:34] Bryce Yeah, I'll also go in New Zealand. 

Alec: [00:42:37] Unfortunately both of you were wrong. 

Lily: [00:42:39] So okay.

Alec: [00:42:42] So Qantas is up 16% year to date for 2022 and New Zealand is down 20% year to date. So neither of you get the point, Lily. You are one up, which means price really needs to know. Yeah, she got the first she was on. 

Bryce: [00:42:59] She was close. 

Alec: [00:43:01] She got the points. Oh, this is. Oh, this is the closest to the pin game. Also, this is my guide. All right, so this one, I don't expect either of you to know, but that's kind of the point of these questions. But hopefully we'll learn something. I certainly learn something by making it because it's kind of fascinating. There are three giant airline alliances where global airlines all work together and I guess share a bunch of loyalty programmes and points and routes and stuff like that. They are OneWorld, which includes Qantas, British Airways, American Airlines and Cathay Pacific, amongst others. There's Star Alliance, which includes Air New Zealand, Air China, Air Canada, Lufthansa, Singapore Airlines. And then there's SkyTeam, which includes Air France, China Airlines, Garuda, Korea, amongst others. So the question is of OneWorld, Star Alliance and SkyTeam, which is the biggest honestly. 

Lily: [00:44:04] Star Alliance.

Alec: [00:44:05] Star Alliance. Bryce Husky, ongoing oneworld. OneWorld. Well, you know what Lily has absolutely nailed it is Star Alliance. Star Alliance have 26 airlines and transport over 700 million passengers a year. Price You said oneworld, they are actually the smallest with 13 airlines and 490 million passengers a year. And SkyTeam is in the middle with 18 airlines and 630 million passengers a year. So there we go. Hopefully we all learn something about airlines. Lily as the winner. Beating Bryce to nil. Which book would you like to go home with?

Lily: [00:44:47] If I can get two signatures from you guys. Look, I'll take that deal. Deal? Oh.

Alec: [00:44:57] Well, great. Well, Lily, thank you for joining us for Friends Book Bonanza. We've got plenty more books to give away. So if you want to play, jump over to the Equity Mates Forum. We'll be looking for people there. And I don't know what the industry will do next week, but I can't wait to do it. 

Bryce: [00:45:15] Love it. Thanks, Lily. Thank you. All right, Ren. Well, great way to finish. Congrats to Lily. First win on the board from an Equity Mates community member. You've gone from my strongest day.

Alec: [00:45:25] We've gone from getting all three right last week to not getting any. 

Bryce: [00:45:29] Yeah, no, I didn't. I just wanted to. I wanted to start off kidding. Anyway, and that brings us to the end of the big episode, but we will be back next week, so let's pick it up then. 

Alec: [00:45:39] Sounds good.