Dear readers,

Firstly, let me apologise for not being able to write a note for the Switzer Super Report last week. I blame the United Kingdom’s woeful telecommunications system, which wouldn’t allow me to send an email from my iPhone!

As Australians, we all take for granted fast and reliable mobile voice, text and data service. That is even more so with Telstra’s 4G network and the NBN being rolled out. When you travel to the UK, even just outside of London, you could easily believe you have time travelled back 20 years in terms of mobile coverage. I hadn’t even seen the words ‘GPRS’ on my screen for as long as I can remember!

We live in an increasingly digital world and digital economy. I’d have to say I though the UK’s telecommunications were third world and actually made me concerned about overall investing in the UK. All economies need up-to-date infrastructure and Australia’s is getting more up-to-date in many areas. This is a good thing for Australia’s future growth and productivity.

On that topic, it was encouraging to receive many positive replies to my email, following a recent dinner with the new Prime Minister, Malcolm Turnbull.

My analogy of the Australian economy as a “company”, and the PM as the CEO, appears to have resonated strongly with readers.

A common characteristic of all good companies is strong leadership. It’s clear that the PM’s strong corporate pedigree sits well with the electorate. The prime example is the most recent Newspoll survey, which revealed that Malcolm Turnbull’s approval rating has soared to a four-year high for any PM. In addition, 67% of respondents currently believe that he is the preferred PM.

While I usually don’t look at political polls, the Nation is crying out for decisive direction and strong leadership and it appears the PM is attracting support from both sides of politics. This is a good development for the economy and business. It’s also pleasing to see that the Opposition’s attempts to re-ignite the class warfare debate, by highlighting the PM’s wealth and Cayman Island investments, failed to gain any traction with voters.

In contrast, many obviously see the PM’s business success as aspirational for fellow Australians. I perceive a positive change and a sense of optimism in the community and it seems like a veil of pervasive negativity has lifted after seven long years of combative, negative politics.

The PM’s positive approval rating is also being reflected by a marked change in business sentiment.

NAB’s September Quarter business confidence survey revealed that corporates viewed the current conditions as the strongest since 2008. Lending to businesses surged in September, registering the strongest growth in the post GFC period. According to RBA figures, business credit rose 1.2% versus an average monthly gain of just 0.1% for the last seven months. This has translated to credit growth of 6.87% per annum, or the fastest growth since February 2009.

There is no doubt that economic rebalancing following the end of the mining boom remains dependent on a resurgence in business spending by corporate Australia. In this regard, the disastrous future cap-expenditure intention surveys over the last 12 months have highlighted the business investment cliff for the economy. At the same time, the lack of investment in future growth by corporate Australia has directly correlated to a lack of confidence in governments.

The good news is that consumer and business confidence is recovering but we still await the return of the “animal spirits”, which drive spending, investment and productivity. However, at the RBA meeting this week, the Board decided to leave rates unchanged, due to a belief that “business surveys suggest a gradual improvement in economic conditions.”

As I mentioned in my last article, “for the economy to grow you need the Federal Government, State Governments, the RBA, listed corporates and consumers all effectively spending”. In recent meetings and media presentations, the PM has continually stressed the government’s commitment to infrastructure spending. Meanwhile, the government has approved an increase in Fed funding for the next stage of the Gold Coast light rail project.

The importance of the government’s role in infrastructure investment has encouraged bipartisan support, with the Opposition pledging a $10b contribution to the Infrastructure Australia fund. This represents a major step forward for both economic rebalancing and stronger domestic growth.

I believe Australia is on the cusp of a major private/public infrastructure revival.

While I will always advocate fully franked dividend yield for any balanced portfolio aimed at generating long term wealth, I believe ASX 200 dividend payout ratios averaging over 70%, are close to peaking. Conversely, I believe we remain in the early stages of a corporate re-investment in growth.

This trend change has important implications for the composition of ASX performance. As such, I expect an increase in PE-dispersion, where growth stocks outperform yield plays and companies with improved growth prospects attract higher PE multiples. A prime example is Vitaco (VIT), which remains a core long-term portfolio position.

Vitaco (VIT)

Source: Yahoo!7 Finance, 5 November 2015

Recently, I highlighted ASX listed companies, which are currently being rewarded by higher PEs for GROWTH initiatives, which include Macquarie Group (MQG), Treasury Wine Estates (TWE), Servcorp (SRV), & Domino’s (DMP). This is the start of a trend in my view where GROWTH will outperform YIELD. The composition of our portfolio is now reflecting a new “search for growth” strategy.

In line with my view of a resurgence in business spending, I believe Qube Holdings (QUB) will benefit from my expectation that we are entering a strong public and private infrastructure investment cycle. Qube Holdings is a diversified logistics and infrastructure company that provides a diverse range of integrated port services, bulk material handling and bulk haulage. The Chairman is Chris Corrigan, the ex CEO of Patricks, which was taken over by Toll Holdings with the Patrick assets eventually spun out into Asciano (AIO).

Qube Holdings (QUB)

Source: Yahoo!7 Finance, 5 November 2015

In partnership with Global Infrastructure Partners (GIP) and Canada Pension Plan Investment Board (CPPIB), the consortium recently bought 19.9% of the voting control of Asciano. The purchase represents a blocking stake in Brookfield’s Infrastructure Partner’s scheme of arrangement offer for Asciano, which effectively kills the takeover offer, while providing QUB the opportunity of a seat at the table for any possible asset breakup.

The prize for QUB is the port assets or Patrick’s stevedoring business including four capital city container terminals. A purchase of the port assets would be transformational, doubling the size of the merged company and providing QUB control of the logistics supply chain, from container loading to distribution via a rail network to the newly approved Moorebank intermodal terminal, which has the ability to handle nearly half of Port Botany’s existing 2.3m container traffic. Clearly, it’s early days, but QUB has already soared on the expectation of a deal for Asciano’s port assets. In partnership, GIP and CPPIB would share the Pacific National rail assets.

Big overseas infrastructure funds are circling Australian assets. With a new player entering the Asciano takeover, the price for infrastructure and growth assets has just risen significantly. Once again, I believe that the economy is entering a strong business spending and infrastructure investment cycle in which growth assets will attract a significant PE premium as the economy rebalances.

I encourage you to have a look at QUBE (QUB). This is a mid-sized company that started as a small company that could be about to become a very big company controlling very strategic, high barrier to entry assets. As the company could be completely different in a few months’ time, there’s no reason to analyse current QUB earnings. This really comes down to back successful management with an ambitious growth agenda.

I continue to encourage you to increase weightings in growth companies as the Australian economy comes out of the doldrums.

My AIM Global High Conviction Fund fund has moved that way to growth and that is one key reason we have beaten the ASX200 by 11.1% in just three months.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.