Thursday, 22 September 2016
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An Article about us in the AFR


By Vanessa Desloires Padley is one of the country's most recognisable stockbrokers, although he admits he's not particularly popular within his own industry. 

The straight-shooting Englishman has built a successful business around his Marcus Today newsletter, but is also known for his habit of pointing out the shortcomings of his own industry through the media. He now has his sights set on funds management.

Padley's insights through regular columns include "anyone who says 'If you never sell you never take a loss' is a complete idiot". It is this piece of advice, written in a weekend newspaper, that placed Padley into particularly hot water one morning in 2008 as the market was spiralling into the global financial crisis. 

"A dealer came storming in and said 'What the eff did you write, because I've got 10,000 emails telling me I'm an effing idiot'," Padley says with a roaring laugh. "He sent an email out that Friday saying 'Don't worry, if you don't sell you'll never make a loss'."

Padley, a native of Yorkshire and originally destined to follow his father into the Royal Air Force, has always felt uncomfortable with the commission-driven world of broking.

(This is my Dad - a Wing Commander in the RAF in the cockpit of a DeHavilland Vampire which he flew for three years out of Sale in Australia in 1963-65)

For the last 16 years, he has worked with private clients he built through the subscription-based Marcus Today, which he started while working as a retail broker at Bell Securities in 1998 following a career in the institutional world. He arrived in Australia in 1994, a "souvenir" of his Australian wife Emma's trip to London.

It was at Bell Securities that the father of four received some career-defining advice from Andrew Bell. "He said I'll teach you how to do broking. What you need is one client and one stock," Padley says.

That client was his brother-in-law, who had $10,000 to invest, and the stock was Challenger Financial. Off and running, he noticed a dearth of research in retail broking and set about writing daily trading ideas in an email which soon took on a life of itself.

"The newsletter business was hugely scalable and it overtook everything," he says. Through the newsletter he built himself his own client base, and eventually realised that these clients wanted a full suite of services.


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Marcus Today later merged with financial planning firm Investment Strategists to create Marcus Today Investment Strategists, led by Pauline Hammer and Anna Garuccio.

Rather than outsource investment ideas to a fund manager, the team is now branching into investing, launching two separately managed accounts (SMAs), which are distinct from traditional managed funds in that the client owns the underlying share position.

Padley says the traditional managed funds establishment is coming under pressure from the rise of the SMA in a world where returns are harder to come by and their business models are harder to justify.

"We had 30 years where the market went up 11 per cent per annum, with inflation at 5 per cent and interest rates at 7 per cent on average, business could grow," he says.

With interest rates and inflation at virtually zero, and growth hard to come by, fund managers that benchmark against GDP growth or stock market indices are adding almost no value, he says. "The game's going to be up."

"For 99 per cent of the funds management industry, the tide's going to go out and they're going to be revealed for doing what you could do for $19.99 on the ASX – buying a listed investment company or a passive ETF because that's all they're delivering."

According to Morningstar, around 35 per cent of actively managed equity funds hit or outperform the S&P/ASX 200 accumulation index over five years. In the US, the number is less than 10 per cent.

The SMA is what Padley sees as disrupting the funds management business by passing the ownership of the shareholdings directly to the client, based on stock picks by Padley's team, which reduces the involvement of the portfolio manager. It also gives the client their own tax position, an advantage for retirees in a zero-tax environment.

The fund charges a 10 per cent performance fee, so if it doesn't make money, it doesn't charge a fee.

MTIS has launched two SMAs, the Marcus Today Separately Managed Account, which is just three months old, and the recently launched Equity Income fund. It has around $10 million invested so far.

Padley appreciates the scrutiny that stockbrokers come under when they move into funds management. Charlie Aitken's firm Aitken Investment Management has had as many pundits betting it will fail as succeed.

Stockbrokers with opinions are generally unpopular, Padley says, describing himself as a "medium sized poppy" that would be routinely cut to size by his industry. "It's a pretty unpleasant existence in broking if you have any sort of media profile."?

But he says the re-subscription rate of his newsletter of up to 85 per cent was testimony that this 'tell it as it is' philosophy rates with retail clients. "We've had subscribers for 16 years, they wouldn't still be here if I was a bullshitter," he says.

The Marcus Today SMA is an aggressive strategy with just 20 stocks in the portfolio. Padley is not a believer in diversification, arguing a fund with 300 stocks across five countries and five currencies is riskier, particularly if the manager doesn't have an detailed knowledge of each company.

The criteria for stock picking falls under the "unsexy" acronym of TFTM, or themes, fundamentals, trends and management. The investment team start with a theme, then within that identify a basket of stocks and filter based on company fundamentals. They then look at trends, or charts, to see whether the stock's chart is showing the market is buying or selling, and then try to time the investment. The management is 95 per cent of the job, Padley says.

"Picking stocks is massively overemphasised as the way to succeed in investing," he says.

"With the right post management system you realise that picking a stock is just a game of probability, all the odds are in my favour, it's got a good theme, good fundamentals, the trend's there at the moment but the day after you buy it that could change and you need to be flexible to be able to react to that."

Padley looks at return on equity rather than price-to-earnings or yield. "If I go along and see a stock that's on a high PE and low yield all that tells me is I'm on the right track because its popular," he said.

The themes Padley likes include the cloud, picking NextDC; internet software, naming Aconex, and Megaport; healthcare, picking Cochlear for its consistent RoE, MaynePharma and Nanosonics. He also names stocks linked to internet infrastructure, including telcos TPM, Spark, Vocus, and Chorus; Speedcast, Superloop and Netcomm.

He also likes industrials, and said while this sector might be bid up and vulnerable to shocks, they will continue to be bought on weakness every time amid a low interest rate environment.

The equity income portfolio has a greater focus on income, and among its top listings include BT Investment Group, Credit Corp, Flight Centre, Macquarie Group and Telstra.

Fairfax Media Australia 

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