Forget the fads and go for gold: Lamm
The co-founder of one of the nation’s most profitable fundmanagers, L1 Capital’s Rafi Lamm, has urged investors not to get ‘sucked in bycurrent fads’ such as the explosion of AI.
By DAMON KITNEY
From Wealth
1 hour ago
7MINUTE READ
The co-founder of one of the nation’s most profitablefund managers, L1 Capital’s Rafi Lamm, has urged investors not to get “suckedin by current fads” such as the explosion of artificial intelligence, as thefirm sees fresh opportunities for gold, energy and copper stocks.
Mr Lamm and his co-founder Mark Landau have made almost$300m in net profits for their privately held firm since 2020, far more thansome of the biggest stock pickers in local funds management.
Over the past three years L1’s $3.5bn long-short strategyportfolio has returned 14.2 per cent, versus the 7.3 per cent return of the ASX200.
In April Mr Landau said that he would take a medicalleave of absence for three months, leaving Mr Lamm in charge.
“I think the most important thing is to not get sucked inby current fads. Now, whether it’s AI this year or EVs last year, or cannabis acouple of years ago, try to take a long-term perspective on what the cash flowgeneration is going to be for companies,” Mr Lamm told Future GenerationAustralia chief executive Caroline Gurney in a podcast being released onMonday.
Future Generation Australia is a listed investmentcompany that waives its management fees and donates 1 per cent of its assets toyouth-focused charities, and L1 is one of its many managers.
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“The most important question to always ask is ‘what isalready priced into the stock?’ It can be a fantastic company, but if everyoneknows that information that’s priced in, there’s probably no opportunity. Wealways ask that question. If we think we can see opportunities that aren’tpriced in, that makes us excited,” Mr Lamm said.
In the podcast Mr Lamm said L1’s long-short fund hadrecently increased its net long position to gold.
Recent geopolitical developments around the world haveprovided a significant boost to gold prices, reflecting its status as a safehaven asset and its appeal during periods of low interest rates.
Additionally geopolitical tensions, such as the ongoingstalemate in ceasefire talks between Israel and Hamas and escalating conflictsin regions like Ukraine, have further elevated gold’s appeal as a safe haveninvestment.
“We invested across a number of names on the long side,but also on the short side. We see gold stocks having some of the best freecash flow yields across the ASX 200, which really attracts us to the sector,”Mr Lamm said.
“In terms of the recent rise in the gold price, it’salways hard to explain or predict gold prices, but a few of the things thatwe’re seeing in the background include very strong buying by Chinese consumers,very strong buying by Chinese and other emerging market central banks, and verylimited production growth. We think all those factors are likely to continueover the medium term.
“We see a higher gold price over the next few years thanwe’ve come to get used to over the last couple of years. I should also add thatwe’re seeing increasing nervousness around the sustainability of the US federalgovernment budget. The deficits are massive and they’re set to continue intothe medium term. We think this is going to be inflationary and again provideupside contribution to gold prices.”
L1 also has exposure to leading copper stocks. The priceof copper has risen 17 per cent this year on fears of shortages, with ageingmines around the world forecast to struggle to keep up with demand.
“We think the market is currently in modest undersupplyand we see that undersupply growing between 2025 and 2030, and even beyond. So,we think this investment idea has a very long duration to it,” Mr Lamm said.
One of L1’s top stock pics is uranium producer NexGenEnergy, which is listed both in Canada and Australia.
“Uranium is one of those metals that’s been unloved for acouple of decades and so the opportunity is dramatic. There’s been literallytwo decades of underinvestment in uranium.
“The time delay to get new projects up and running isvery long. So that’s the good news. The bad news is everyone knows that uraniumis an attractive commodity. So a lot of the shares are priced very much forperfection.”
NexGen’s main development focus is the Rook I project inthe Athabasca Basin in Canada, which hosts the Arrow discovery from 2014,considered to be the largest development-stage uranium deposit in Canada.
NexGen shares rose last week after the uranium developersigned a $250m supply deal.
At the same time federal Opposition Leader Peter Duttonis backing nuclear energy to provide reliable baseload power to support windand solar as Australia transitions from coal and gas-fired plants.
The Liberal Party’s policy includes both smaller modular-typenuclear plants and larger capacity next-generation reactors.
“We definitely think that uranium is a good solution orpartial solution for green-based power,” Mr Lamm said.
Last year L1 called on Santos to demerge its liquefied natural gas assets. Picture: Bloomberg
He said L1 was encouraging mining giants BHP and RioTinto to consider brownfield expansions and acquisitions ahead of majorgreenfield new projects.
“They are to some degree victims of their own success.They’ve become so large and so profitable, the new projects have to be verysignificant to move the needle. In the case of both companies, while they haveexcellent management teams, excellent execution capabilities, the challenge isnew, large-scale greenfield projects today are very hard to deliver,” he said.“Typically, they run over budget. They encountered many different delays and soit’s very hard to generate high IRRs on such large greenfield projects.”
Last year L1 Capital took an activist position on energygiant Santos, calling for a demerger of its liquefied natural gas assets.
L1 has a number of energy companies in the portfolio,highlighting its relative optimism about the outlook for the oil price.
But Mr Lamm said the firm was realistic about theoutlook.
“We think that as oil gets towards $US100 (a barrel) andbeyond, you start to see major demand destruction. So we think oil is probablygoing to stay within the range of roughly $US75 to $US90 or $US95 a barrel overthe medium term. We think from an inflation perspective, that’s not going tohave a dramatic impact.
“And you should also keep in mind that other portions ofthe energy universe have been relatively weak or benign. So whether it’snatural gas prices or thermal coal prices, the overall energy complex isn’tparticularly inflationary as we sit here today.”
The Reserve Bank last week kept rates at a 12-year highof 4.35 per cent, and while governor Michelle Bullock noted that rates werecurrently at the right level, she cautioned that inflation risks were on theupside.
But the RBA stopped short of reinstating a tighteningbias that some economists had tipped after first quarter inflation and the labourmarket failed to cool as much as expected.
“When we look at inflation more generally, it’s been verypleasing – the decline in inflation over the past 12 months,” Mr Lamm said.“However, it hasn’t declined anywhere close to where the central bank’s targetsare set. Those targets are going to be hard to achieve. And so while we seeongoing progress on inflation normalisation, it’s not quite going to get to thetargeted levels. That’s going to mean the interest rates can’t come down asquickly as markets were expecting and as dramatically over the medium term.”
Globally central banks are struggling to get inflationback to target, complicating the outlook for eventual rate cuts.
“We see maybe one or two cuts in the US this year, butonly 0.25 per cent cuts. And over the medium term, we see interest ratesstaying much higher than the levels that we got used to over the past twodecades,” Mr Lamm said.
Looking ahead, he said L1 expected consumer discretionarystocks to come under some pressure after a strong couple of years of earningsand price-earnings multiple growth.
“In many cases, they are kind of trading for perfection.But in the backdrop, we can see things are getting more tough for consumers.Higher interest rates for a longer period of time are pressuring consumerbalance sheets and mean that discretionary spending will come down in somecases. Also margins are very elevated. They can come down over time also,” hesaid.
“Another space that we are a little bit less excitedabout in the broader market is the Australian banks. They’re trading onhistorically high multiples, but if you look at earnings growth projected overthe next couple of years it’s modest, modest to zero.”
