ASX Fund Managers Best Bets and Advice
Some of Australia’s top investors deliver their opinion on the big picture, the small picture and all that lies in-between. A must read for anyone looking to profit in 2021 and beyond. In this series, Richard Hemming asks 8 of Australia's top fund managers key questions on investing. These are excerpts from the last 4 questions.
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Q9: Which CEOs have you been most impressed with and why?
Portfolio Manager, Australian Ethical Emerging Companies Fund & Australian Ethical Australian Shares Fund:
We have been super impressed with the controlling shareholder of Macquarie Telecom (MAQ) David Tudehope who has executed his data centre vision. Sticking to his guns around strategy and funding through the process has resulted in an incredibly rewarding shareholding experience.
Equity Asset Management, Wilson Asset Management:
CEOs of founder-led companies immediately come to mind. The long-term guidance founders provide, coupled with a deep understanding of their market, is a competitive advantage. Alignment with shareholders is another key attribute of founders, who often view the business as their life’s work. There are numerous examples here: Tony Walls of Objective Corporation (OCL), Wes Maas of Maas Group (MGH), and Ryan Stokes of Seven Group Holdings (SVW) are just some examples of great founder-led Australian companies with a track record of strong value creation.
Q10: What are your biggest contrarian bets and why?
Portfolio Manager, QVG Capital:
Ha! I think our biggest contrarian bet over the last 9 months has been doing the anti-rotation/re-opening trade. We totally missed the travel, auto, and resources trades over the last 12 months and think it’s unwise to chase them now. In fact, we’ve done the opposite. We have been selling our cyclicals to buy more structural growth companies. Sectors being sold included mining services, financials, retail, and agriculture. If you want a contrarian bet have a look at Graincorp (GNC). It’s cheap and the earnings quality and balance sheet have improved dramatically. It has a tortured history which keeps all but the grubby value investors on the sidelines but we think it’s a turnaround that has already turned.
Portfolio Manager, Surrey Asset Management:
We believe Maggie Beer (MBH) after a troubled history could be turning a corner. We invested recently via a placement and see management as refreshed and clear in what they are trying to achieve. The market has had a challenging period over recent years with the company but believe if they can present solid earnings results and be more consistent this could change.
Portfolio Manager, Kuttabul Capital Management:
I don’t think I really own any stocks that everyone else hates unless you consider energy a contrarian investment. Perhaps I have a contrarian view about sectors I don’t own. For example, I can’t get excited about FinTech. Many of the firms are simply money lenders who don’t have a shopfront and who outsource lending decisions to machines. Growing the lending book requires continual capital raisings, both debt and equity. It isn’t possible to grow the business at a satisfactory rate out of the cash flow the business generates. In that sense, they have a lot in common with shale drillers.
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Q11: Are you more interested in resources than earlier? Why? Which stocks do you own?
Portfolio Manager, DMX Asset Management:
I wouldn’t say we are more interested in resources than previously. We avoid miners and focus on service providers that are less dependent on individual commodity prices and have genuine IP rather than people businesses like engineers or drillers. Some that fit that bill across our portfolios are:
XRF Scientific (XRF) - provides sampling equipment and consumables to resources and industrial companies.
Laserbond (LBL) - provides surface engineering services to increase the life of mining equipment.
RPM Global (RUL) - provides software and consultancy services to the mining industry.
Portfolio Manager at Rothschild Australia:
Deterra Royalties (DRR) is a must-own. I’ve been playing around in a few gold stocks (Franco Nevada) as – a bit of a start of a stealth bull market there – and also sniffing around the silver area. I am happy to play the sector via ETF’s, but increasing exposure. I have sold my oil exposure.
Read more about Investing in Small Caps. Why we picked these ASX Small Cap gems and their outstanding performance.
Q12: Have you been buying growth stocks and if so, which ones? Have you been holding or taking profits?
Principal at Cadence Capital:
We are always buying growth stocks but probably not as the industry and press defines it. We are looking for stocks that display strong earnings growth and cash flow growth relative to their valuations. I think what is meant by growth stocks generally these days are stocks that don’t earn profits of cash flow but are emerging companies on large valuations that may have earnings in the future. These later companies cannot meet our core criteria but appear in the trading portion of our portfolio. These stocks have performed well this year and some of them will go on to be companies that produce profits and cash flow, many of them will not.
THE IDLE SPECULATOR
Portfolio Manager, Under the Radar Report:
Yes, Kogan (KGN). We bought at a temporary bottom around $10, and the stock has bounced. We have also dabbled in the BNPL stock Splitit Payments (SPT). We like the growing production profile in many of the resources Small Caps we have been covering in lithium, as well as energy. Elsewhere, the med-tech sector has been a very profitable space for us, with stocks generating big returns such as Clover Corp (CLV), Nanosonics (NAN), and Cyclopharm (CYC). Can you believe it but the manufacturer Laserbond (LBL) is generating big growth. Who says manufacturing is dead?
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