Interview: What turbulent markets & a spending slowdown mean for investors

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Sean Aylmer: Welcome to the Fear & Greed Business Interview. I’m Sean Aylmer.

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Sean Aylmer: There’s been a real slowdown in consumer spending in recent

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Sean Aylmer: months. National accounts from the Bureau of Statistics show that

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Sean Aylmer: while household wealth increased in the first half of 2023

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Sean Aylmer: due to higher property prices, deposit accounts shrank by about $

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Sean Aylmer: 6 billion, as we saw the first quarterly decline in

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Sean Aylmer: savings since June, 2007. Despite population growth, retail sales growth

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Sean Aylmer: also missed expectations, giving another indication that Australia is facing

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Sean Aylmer: a per capita recession.
I wanted to find out what

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Sean Aylmer: this means for investors, whether they’re still investing and whether

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Sean Aylmer: it changes their approach. And it comes at a time

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Sean Aylmer: that markets are slipping back, creating potential opportunities for investors

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Sean Aylmer: looking both at the ASX and international markets.
Of course,

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Sean Aylmer: this is general information only. You should always seek professional

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Sean Aylmer: advice before making any investment decision.
Jon Howie recently joined

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Sean Aylmer: Stake, which is a great supporter of this podcast as

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Sean Aylmer: their new chief commercial officer. He comes with a pretty

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Sean Aylmer: impressive history in the sector, having been the head of

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Sean Aylmer: index equity for Asia Pacific at investment giant BlackRock, and

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Sean Aylmer: previously holding various roles at Macquarie Bank. Jon, welcome to

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Sean Aylmer: Fear & Greed.

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Jon Howie: Great to be here.

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Sean Aylmer: I got to start with a question about Stake as

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Sean Aylmer: opposed to BlackRock and Macquarie. BlackRock and Macquarie are two

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Sean Aylmer: of the giants in the finance world, certainly in Australia.

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Sean Aylmer: Is it different working for a smaller organization?

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Jon Howie: Look, it is, but it’s also very similar as well.

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Jon Howie: Not to advertise my previous roles, but look, both of

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Jon Howie: those organizations were very innovative in their own right and

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Jon Howie: being part of Stake for the last few months, that’s

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Jon Howie: been a consistent theme. Obviously, we are trying to improve

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Jon Howie: the investment landscape for Australians, and so I think there’s

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Jon Howie: a lot of echoes between some of the work that

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Jon Howie: I did in some of those previous roles, both at

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Jon Howie: BlackRock and Macquarie.

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Sean Aylmer: Okay, so the slowdown in consumer spending, what’s it mean

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Sean Aylmer: for investors?

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Jon Howie: Well, ultimately what you’re seeing obviously is that consumers are

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Jon Howie: thinking more carefully about how they spend their money. Look,

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Jon Howie: we all know that interest rates have gone up very

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Jon Howie: rapidly over the past several months. We’ve seen a lot

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Jon Howie: of data and a lot of news reports about cost

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Jon Howie: of living pressures, transport costs, housing costs, just general inflation,

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Jon Howie: et cetera. So that really plays across the whole market, and

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Jon Howie: certainly our Stake customers are mindful of that, are thinking

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Jon Howie: about that.
But what is interesting, from our perspective, is

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Jon Howie: that what that means is they’re actually focusing more on

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Jon Howie: their investments. When we survey our customers, they are being more

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Jon Howie: careful, more thoughtful, more deliberate in making decisions around trying

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Jon Howie: to improve their own financial futures. They’re continuing to invest.

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Jon Howie: They’re thinking more broadly about how they invest, how they

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Jon Howie: build portfolios, and ultimately how they secure their financial futures.

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Sean Aylmer: That’s a good thing, isn’t it?

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Jon Howie: Look, it’s a great thing. I think what we’re seeing

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Jon Howie: certainly is younger investors who are coming through. Again, this

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Jon Howie: is not new news, but things like property prices, cost

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Jon Howie: of rent, cost of living, et cetera, is meaning that

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Jon Howie: young people really have some challenges on their hands and

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Jon Howie: as much as in some cases that might be painful,

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Jon Howie: what it is meaning is that they’re actually paying attention

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Jon Howie: to some of those really important longer term decisions where

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Jon Howie: sometimes those can be ignored or they can be delayed

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Jon Howie: or put off. What we’re seeing is certainly when we

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Jon Howie: survey customers is they’re actually, they’re front and center right

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Jon Howie: now, and I think that will pay dividends over the long-term.

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Sean Aylmer: Okay. So if you’re investing now and the market is

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Sean Aylmer: choppy, to say the least, there are opportunities out there

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Sean Aylmer: for investors, how do you find them? I’m just interested,

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Sean Aylmer: if I’m an investor and I’m thinking about using Stake

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Sean Aylmer: and putting money into the local market or Wall Street

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Sean Aylmer: or somewhere like that, how should I think about it?

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Sean Aylmer: And particularly just with relevance to what’s happening right now

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Sean Aylmer: given bond yields as they are?

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Jon Howie: Yeah, look, that’s always a very nuanced question, and there’s an

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Jon Howie: enormous amount of information out there today. So for investors

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Jon Howie: who are looking to educate themselves, to find out information

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Jon Howie: about what investments they might want to own, all of

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Jon Howie: those questions. So we do a lot of work trying

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Jon Howie: to provide information that’s easy to digest and understand.
We

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Jon Howie: do see certain trends as investors respond to certain market

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Jon Howie: dynamics. Sort of 12 months ago, you would be familiar

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Jon Howie: with a lot of the activity that was around some

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Jon Howie: of the meme stocks in the US. We saw an

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Jon Howie: enormous amount of activity there, and a lot of that

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Jon Howie: has gone away over the past six to 12 months.

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Jon Howie: We’ve started to see investors now thinking a little bit

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Jon Howie: more about investing locally. So our investments in Australian shares

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Jon Howie: has been accelerating really rapidly, which is great. It’s a

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Jon Howie: new product for us.
I think it’s also partially driven

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Jon Howie: by the current weakness in the Australian dollar is that investing

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Jon Howie: offshore, up until recently, has been somewhat more expensive than

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Jon Howie: it was previously because the Aussie dollar was looking relatively

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Jon Howie: weak, and so we saw local investors focusing more locally.

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Jon Howie: That’s all very cyclical as things move around. We see

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Jon Howie: investors are pretty smart on average, and we see them generally

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Jon Howie: looking, and on average flows are generally tending towards areas

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Jon Howie: of the market where there’s greater value.
And you raise

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Jon Howie: that really interesting one at the moment is fixed income

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Jon Howie: is a really interesting area, and we’re starting to see

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Jon Howie: a lot more interest for investors who are looking to

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Jon Howie: generate stable and lower risk forms of income through things

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Jon Howie: like bond, ETFs, et cetera.

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Sean Aylmer: Stay with me, Jon, we’ll be back in a minute.

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Sean Aylmer: I am talking to Jon Howie, Chief Commercial Officer at

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Sean Aylmer: Stake. So, actually, I’ll get on to ETFs in a

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Sean Aylmer: moment, but just lots of people thinking about equities as

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Sean Aylmer: an investment, but do you think people are more broadly

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Sean Aylmer: becoming aware of other asset classes, bonds being the big

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Sean Aylmer: one, but all sorts of alternative asset classes as well?

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Jon Howie: Look, people are certainly becoming much more aware of bonds

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Jon Howie: in particular, and what’s interesting is that the usage or

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Jon Howie: the investment in asset classes, like fixed income in Australia

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Jon Howie: has generally been a bit lower than other parts of

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Jon Howie: the world. There’s a few factors behind that, partially driven

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Jon Howie: by the popularity of property in Australia. Tax policies like

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Jon Howie: negative gearing and all of those kinds of things has

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Jon Howie: meant property has been very popular, but certainly with interest

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Jon Howie: rates where they are now, that’s making fixed income type

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Jon Howie: investments way more interesting for investors. Quite comfortably, you can

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Jon Howie: get 5% yields on bond investments and fixed income ETFs,

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Jon Howie: et cetera.
Other alternative asset classes, we haven’t seen an

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Jon Howie: enormous amount of interest in that space. One of the,

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Jon Howie: I guess the alternative asset classes, that’s easy to buy

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Jon Howie: on exchange is real estate investment trusts or REITs as

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Jon Howie: they’re known. The price and the performance of REITs certainly

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Jon Howie: over the last few months has been somewhat challenged because

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Jon Howie: REITs obviously are sensitive to interest rates, and so the

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Jon Howie: performance of those assets hasn’t been amazing, but we are certainly

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Jon Howie: seeing investors looking further afield than just equities.

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Sean Aylmer: Okay, so let’s talk about ETFs actually, but bonds is

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Sean Aylmer: a good way into it. A bond ETF is a

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Sean Aylmer: fairly, I mean, nothing is risk- free, but relative to

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Sean Aylmer: just putting your money into one bond, it’s not a

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Sean Aylmer: bad way of getting involved.

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Jon Howie: That’s sort of the fundamental benefit of ETFs is they’re

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Jon Howie: generally diversified exposures to an asset class rather than just

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Jon Howie: a single security, exactly as you say. So in the

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Jon Howie: same way that equities ETFs, for example, track the ASX 200,

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Jon Howie: so the ETF will own 200 underlying equities and give

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Jon Howie: you a diversified exposure to Aussie equities, bond ETFs effectively

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Jon Howie: do the same thing.
What’s interesting about the bond market

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Jon Howie: is, in many cases, there are far more bonds issued

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Jon Howie: in the market than there are equities. And so, in

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Jon Howie: many cases, bond ETFs can have in some cases thousands

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Jon Howie: of underlying exposures. And so they really do give investors

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Jon Howie: a very broad exposure to fixed income assets.

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Sean Aylmer: And you can get exposure to along the risk spectrum

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Sean Aylmer: within bond ETFs. Obviously a government bond is rated higher

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Sean Aylmer: than BHP, which is rated higher than a much smaller company.

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Jon Howie: That’s exactly right. In terms of the credit risk of

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Jon Howie: bonds, very broadly, there’s two versions. There’s government bonds, which

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Jon Howie: as you say, inverted (inaudible) are a risk- free

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Jon Howie: asset or a very low risk asset in terms of

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Jon Howie: default. And then there are corporate bonds which are issued

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Jon Howie: by companies like BHP and the banks, et cetera. And depending

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Jon Howie: on the issuer, they will generally have either a little

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Jon Howie: bit more credit risk or maybe a lot more credit

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Jon Howie: risk than government bonds. But the beauty is that there

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Jon Howie: are, I don’t know the exact number, but there’s definitely

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Jon Howie: dozens of bond ETFs available on the ASX now, and

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Jon Howie: there’s probably thousands of bond ETFs available in the US.

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Jon Howie: Obviously, Stake provides access to both Australia and US markets,

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Jon Howie: and so investors really have a huge range of choice

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Jon Howie: when looking at things like bond ETFs.

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Sean Aylmer: Okay. Now, you’ve been with Stake for not that long,

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Sean Aylmer: is that right, Jon?

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Jon Howie: Yeah, four- ish months now, so still pretty new in

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Jon Howie: the chair.

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Sean Aylmer: I think your gig is to grow it. I’m guessing

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Sean Aylmer: your gig is to grow it given you’re a chief

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Sean Aylmer: commercial officer at Stake. It’s a pretty competitive spot to

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Sean Aylmer: be though, isn’t it?

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Jon Howie: Look, it is. So there’s a couple of things. I

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Jon Howie: think we really perceive the ability to serve investors in

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Jon Howie: Australia better than they’ve been served in the past by

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Jon Howie: some of the incumbents. And I think what you’ve seen,

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Jon Howie: again, over the last few months is some of the

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Jon Howie: incumbents have started to ultimately react to some of the

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Jon Howie: improvements that we’ve made, which look, is great for investors

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Jon Howie: and it’s great for competition, but I think it’s evidence

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Jon Howie: that we’ve done a really good job in providing a

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Jon Howie: really compelling service, and we’ve managed to become the third-

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Jon Howie: largest digital broker in the market now, which I think is

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Jon Howie: evidence again, that we’ve got a strong proposition and we

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Jon Howie: are continuing to see customer growth.
And look, I think

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Jon Howie: you’ll see the natural evolution of the market. There really

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Jon Howie: was a huge pickup in investor activity around the COVID

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Jon Howie: pandemic. People obviously stuck at home, and we saw across

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Jon Howie: the board new customers signups accelerated strongly, trading activity accelerated

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Jon Howie: strongly. That slowed down a little bit, and so you’ll

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Jon Howie: probably continue to see rationalization in the industry, but we

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Jon Howie: feel like we’re really strongly positioned to be a market

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Jon Howie: leader going forward.

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Sean Aylmer: Jon, thank you for talking to Fear & Greed.

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Jon Howie: Absolute pleasure.

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Sean Aylmer: That was Jon Howie, Chief Commercial Officer at Stake, a

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Sean Aylmer: great supporter of this podcast.
This is the Fear & Greed

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Sean Aylmer: Business Interview. Remember, this information is general in nature, and

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Sean Aylmer: you should always seek professional advice before making any investment

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Sean Aylmer: decisions.
Join us every morning for the full episode of

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Sean Aylmer: Fear & Greed, Australia’s best business podcast. I’m Sean Aylmer, have

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Sean Aylmer: a great day.