Crown Resorts Other Shoe Drops in Australia After Its Final Macau Exit This past May

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Equity Bottom-Up

The rapid growth in socially responsible investing (SRI) has bucked the trend away from active management.  Estimates suggest that SRI assets amount to up to U$23 trillion globally, around one quarter of total professionally managed assets, while penetration of SRI in Australia is the highest in the world.  Against this backdrop, Evidente is launching a new product, The Socially Responsible Investor.In the inaugural issue, Evidente discusses the investment case for and against <a href="https://www.smartkarma.com/entities/808" target="_blank" data-smartkarma-citation="entities:808:1">Crown Resorts Ltd (CWN AU)</a>.  SRI funds either exclude companies that engage in gambling and other 'sinful' activities or hold them at below benchmark weight to reflect community concerns around gambling.   The stock has under-performed significantly in the past three years, as gaming conditions in Macau have deteriorated.  Now that CWN has sold its stake in <a href="https://www.smartkarma.com/entities/810" target="_blank" data-smartkarma-citation="entities:810:1">Melco Resorts &amp; Entertainment (MLCO US)</a>, the profitability of the business will be determined by developments in Australia.  Whatever diversification benefits CWN has forgone by withdrawing from Macau, they need to considered it terms of the greater clarity and fewer distractions that come from running a simpler and geographically more focused business.  Another key consideration for both SRI and non-SRI funds is that if rapid growth in SRI assets continues as expected, stocks that engage in 'sinful' activities such as gambling will continue to face higher expected returns and lower equilibrium multiples, other things being equal.  Broking analysts and portfolio managers therefore need to carefully consider the discount rate assumptions used for stocks that engage in activities where there are community concerns around their social license to operate.

The rapid growth in socially responsible investing (SRI) has bucked the trend away from active management.  Estimates suggest that SRI assets amount to up to U$23 trillion globally, around one quarter of total professionally managed assets, while penetration of SRI in Australia is the highest in the world.  Against this backdrop, Evidente is launching a new product, The Socially Responsible Investor.In the inaugural issue, Evidente discusses the investment case for and against Crown Resorts Ltd (CWN AU).  SRI funds either exclude companies that engage in gambling and other 'sinful' activities or hold them at below benchmark weight to reflect community concerns around gambling.   The stock has under-performed significantly in the past three years, as gaming conditions in Macau have deteriorated.  Now that CWN has sold its stake in Melco Resorts &amp; Entertainment (MLCO US), the profitability of the business will be determined by developments in Australia.  Whatever diversification benefits CWN has forgone by withdrawing from Macau, they need to considered it terms of the greater clarity and fewer distractions that come from running a simpler and geographically more focused business.  Another key consideration for both SRI and non-SRI funds is that if rapid growth in SRI assets continues as expected, stocks that engage in 'sinful' activities such as gambling will continue to face higher expected returns and lower equilibrium multiples, other things being equal.  Broking analysts and portfolio managers therefore need to carefully consider the discount rate assumptions used for stocks that engage in activities where there are community concerns around their social license to operate.

The Socially Responsible Investor - Crown Resorts