AHZ Reflections from Nov 2017, page-3

Hi All, fantastic post above and always valuable to look back and reflect on how far we have come in such a short time frame. I am also keen to hear from new shareholders who will offer a different perspective and fresh set of eyes.
Speaking of different perspectives I wanted to share a couple more macro themes and tie them back to Admedus.
The first is the ETF phenomenon and the rise of passive investing. In the last 5 years ETF's have exploded with over USD $1 trillion flowing from active to passive management. What we have seen is tremendous success in passive investing as they ride the tailwinds of the current 9 year bull market. Money flowing in to ETF's each day creates an 'automatic bid' in the underlying shares. It bares considering what happens to ETF's when the bull market ends and the redemptions outweigh the contributions. Those automatic bids on the underlying securities disappear and are replaced with offers. All this is speculation of course as we haven't seen how ETF's react in Bear markets which is a risk in itself. There are some great macro voices out there who talk about the risks with ETF's such as Grant Williams, Jesse Felder and others for those interested in learning more.
What does all this mean for AHZ? Given AHZ is not in the All Ords or any benchmarks it is therefore not held by any ETF's. Yes we missed the tail winds ETFs rode in the bull market but we will also miss the downside pressure should we have a bear market in the next year or so. As we have seen AHZ doesn't have a strong correlation to the general market, one of the reasons I expect this to continue is due to the above. So it may not be all doom and gloom when the inevitable bull market comes to an end, AHZ should fare better than most.
Coupled with this I expect a return to favour of the active manager. Active managers have been hammered in recent years as ETFs have performed considerably better on the back of rising asset prices in most asset class and sectors within equities in particular. Jesse Felder calls this 'The everything bubble!' his paper is worth reading. Consider being an active manager and choosing not to hold A2M for example, one decision and your performance is miles behind the eight ball.
An analogy I heard recently is that previous bubbles eg the tech bubble was like being out on a rowboat in the ocean and seeing a water spout, it looks powerful and lots of energy in a condensed space but is ultimately confined to a specific area (tech stocks). There was still value to be found elsewhere such as utilities. This current bubble is like being on the rowboat and the entire ocean rising 2 feet but you don't notice it. Much like a Tsunami starts out at sea. There's very little value to be found anywhere. Warren Buffet has been sitting on $80b in cash as he doesn't see value in the markets.
Given many equities valuations are inflated it is an apt time for the active manager to earn their stripes, roll up their sleeves and search for value, something an ETF doesn't do proactively. Active managers can also choose to hold cash when things turn bad. From Bear markets new bull markets emerge and with a new bull market comes new market leaders.
What does this mean for AHZ? I believe AHZ will be one of these such leaders, if the stars align we will be right place at the right time and a shining beacon of light for active managers searching for value and the next big thing!
Obviously there are many moving parts to markets, the macro picture, psychology, sentiment, etc and the topics above are difficult to condense down to a couple of paragraphs but food for thought while we wait patiently for some announcements! Happy investing, Chris